Clifford Chance

The Financial Conduct Authority (FCA) is consulting (CP20/17 'Extension of Annual Financial Crime') (24 August 2020) on a proposal to significantly extend the scope of firms required to provide information under the current annual financial crime reporting (REP-CRIM) requirements.

The proposals will potentially bring an additional 4500 firms within scope that the FCA consider have an inherently higher money laundering risk, including:

• All firms authorised under the Financial Services and Markets Act 2000 that are within the scope of the Money Laundering Regulations 2017 (MLRs) and either hold client money or, carry on an activity that poses a higher money laundering risk;
• All payments institutions excluding those that only provide money remittance or account information services and/or payment initiation services;
• All electronic money institutions;
• All multilateral and organised trading facilities; and
• All cryptoasset exchange providers and custodian wallet providers. 

Currently, only firms carrying on certain activities and with a total annual revenue of £5million or more must provide REP-CRIM information. However, under the proposals additional firms will need to provide REP-CRIM information irrespective of their total annual revenue.

For the majority of firms, the content of the information that they will be required to provide is set out in SUP 16 Annex 42AR of the FCA's Handbook and includes information regarding their regulated activities, client base and level of resources dedicated to financial crime. Firms affected by the consultation should familiarise themselves with those requirements and the guidance notes on the completion of a REP-CRIM report, set out in SUP 16 Annex 42B.

The FCA believes the majority of additional firms captured by the proposals will be cryptoasset firms, and in view of this cryptoasset businesses will be subject to additional guidance and a draft direction set as out in Appendix 2 to the consultation. The FCA has indicated that there may be further reporting requirements on cryptoasset firms in the future.

The aim of the consultation is to improve firms' money laundering systems and controls and the FCA has made it clear that all firms, irrespective of whether they are required to provide REP-CRIM information, should continue to assess their systems and controls, including through assessments against relevant financial crime publications, to identify and manage money laundering risks. They should also be able to evidence the steps they have taken to manage that risk.

The majority of firms currently subject to REP-CRIM are unaffected by the proposals, with the exception of those firms conducting activities related to 'home finance mediation' or the activity of 'making arrangements with a view to transactions in investments'. The FCA considers these activities are outside the scope of the MLRs, and if the proposals are accepted, they will be removed from the REP-CRIM obligations.

The consultation closes on 23 November 2020 with final rules and a policy statement in Q1 2021. All firms in scope will need to file a report from their next accounting reference date 12 months after any FCA rules are made. Cryptoasset firms must file a report from their next accounting reference date after 10 January 2022. This date takes into account the requirement for cryptoasset firms to have registered with the FCA under the MLRs by 10 January 2021.