Financial Crime: analysis of firms’ 2017-2020 REP-CRIM data

The definition of ‘Politically Exposed Person’ can be found in Regulation 35(12)(a) of the MLRs and what needs to be reported on REP-CRIM is set out under Section 2 of SUP 16 Annex 42B Guidance notes for completion of the Annual Financial Crime Report[14].

For the reporting year 2019/20, firms reported a total of 89,437 PEPs as customers. This decrease from 2017/18 to 2018/19 may be attributed to the fact that in 2017, we amended our guidance[9] to exclude the reporting of certain domestic customers as PEPs.

Firms are asked to report the number of correspondent client relationships with a respondent institution from a non-EEA state.

Over the 3 reporting periods, 180  firms have  reported non-EEA correspondent banking relationships at least once. From these, 5 submissions make up almost 50% of the total, with wholesale financial markets making up 67% on average.

REP-CRIM requires firms to report customers or clients categorised as being high-risk (other than PEPs and Non-EEA correspondent banks) for the purposes of compliance with Regulation 33(1)(a) of the MLRs and therefore subject to enhanced customer due diligence measures.

There were 1,047,338, 797,416, and 735,967 high-risk customers reported in reporting periods 2017/18, 2018/19 and 2019/20 respectively. Overall, the number of high-risk customers is declining.

The retail banking sector reports more high-risk customers compared to other sectors.

As part of the annual REP-CRIM submissions, firms are required to report the number of SARs recorded under Part 7 of the Proceeds of Crime Act 2002. This includes reports submitted to the MLRO/Nominated Officer that relate to the staff member’s concerns, suspicions, or knowledge of, money laundering. The reported figures also include reports received by an MLRO generated by a firm’s anti-money laundering or compliance function, or by automated systems. The MLRO/Nominated Officer considers these reports to decide whether a formal submission to the National Crime Agency (NCA) is justified.

Table 1: summarises the data points collected through REP-CRIM

Overall, there is an upward trend in the number of SARs reported internally to MLROs and externally to the NCA and a declining trend on the number of SARs disclosed to the NCA under the Terrorism Act 2000.

For the reporting year 2019/20:

• Close to half of the 1,028,260 SARs reported internally to MLROs are from 3 firms and the same firms are also contributing to over 60% of the SARs reported to the NCA.
• Retail banking contributed to over 78% of the SARs internally reported to MLROs and about 85% to SARs reported to the NCA.

Table 2: SARs breakdown per sector for the reporting period 2019/20

Note: External SARs figures are a subset of Internal SARs figures.

The difference between the volume of SARs reported to the NCA and the volume of SARs reported internally to MLROs varies greatly between firms within the sector and this could be reflective of firms’ differing risk appetites.

About two-thirds of REP-CRIM submissions over the 3 reporting periods indicated that firms undertake automated screening against relevant sanctions lists.

Firms submit the number of relationships maintained which introduce business. Firms must also report the number of these relationships exited, where financial crime is the driving factor. If applicable, firms must also provide the number of appointed representatives exited.

In the 3 reporting periods, over 1,000 firms have said that they have relationships maintained with natural or corporate persons (excluding group members) which introduce business to the firm. For the reporting period 2019/20, just over 1.17m such relationships were reported across the submissions which was about a 12% increase from 2017/18. 165 firms have said they have exited introducers due to financial crime reasons in the last 3 reporting periods.

61 appointed representatives were exited in 2017/18, with 70 and 73 exited in 2018/19 and 2019/20 respectively.

Each firm submits a list of the jurisdictions in which they carry out business and have assessed as being high risk for financial crime. Respondents rated countries based on ‘financial crime’ risk which, in addition to money laundering risk, may also cover a variety of threats, including sanctions breaches, fraud and bribery.

Table 3 aggregates the data received by approximately 1,900 REP-CRIM submissions for the reporting year 2019/20. The table is compiled by aggregating the number of instances a country has been assessed as higher risk by a firm. It is important to note that the position of a country in the table will be influenced by many factors, including firms’ different risk appetites and the countries in which firms carry out business. For example, a country may be considered high risk but due to few firms operating in the country it wouldn’t be included in many firms’ submissions, causing it to appear lower in the table below.

The table does not represent the opinion of the FCA. It is solely an aggregation of data collated through REP-CRIM submissions.

Monitoring and addressing the risk that criminals abuse the financial system consumes a significant amount of firms’ time and resources. We ask firms to report total full-time equivalent (FTE) of UK staff within financial crime roles. This should cover staff in roles relating to anti-money laundering, counter-terrorist financing, anti-bribery and corruption, and fraud.

For the year 2019/20, firms which submitted the REP-CRIM collectively employed around 17,403 full-time equivalent staff in financial crime roles, as compared to approximately 18,000 in 2018/19 and roughly 15,700 during the year before.

Based on the FTE reported for 2019/20, we estimate that firms who submitted the REP-CRIM are collectively spending around £1.1b annually in dedicated staff time to combat financial crime.

We do not ask firms to set out their costs. We have estimated cost based on the Office for National Statistics’ publication ‘Employee earnings in the UK: 2019’ which estimates that the UK median full-time earnings for quality assurance and regulatory occupations was £43,545 a year. Adding on 50% for overheads (such as employers’ national insurance contributions, accommodation, power, etc.) assumes an annual cost of £65,319 per FTE. The figure does not include other costs such as those related to information technology systems. Nor does it include time taken by the rest of a firm’s staff on preventing financial crime, for example, branch staff dealing with customers who are at the front line of the sector’s efforts to tackle fraudsters and money launderers.  

We ask firms to report on the number of customer relationships refused or exited from all lines of business for financial crime reasons during the reporting period. This covers any customers or clients with whom the firm ceased to do business where financial crime or criminal behaviour by a customer or client with a financial element was the principle driver behind the decision.

A total of 761,437 customers were exited during the 2019/20 reporting period, which has more than doubled in the last 3 years. This was about 0.16% of total customers across all submissions that year. Retail lending and retail banking sectors exit the most customers each year.

During the 3 reporting periods, the number of customers refused for financial crime reasons totalled 1.46 million in 2017/18 (0.37% of the total relationships reported), 1.48 million in 2018/19 (0.35% of total relationships reported) and 2.05 million in 2019/20 (0.45% of total relationships reported).

The questions around Fraud on REP-CRIM are designed to obtain the firm’s view on the most prevalent frauds relevant to the firm. The data obtained may not be a reflection of the whole industry as REP-CRIM only applies to a section of our supervised population under the MLRs.   

In addition, the firms’ responses to the fraud section of the financial crime return are voluntary and an average of 50% of respondents (less than 1,000 firms) complete this section each year.

Separately, we have also published a summary of our work to tackle consumer harm in the investment market[10].

Fraud concerns

Firms are asked to submit their top 3 fraud concerns. The data displays only the top concerns reported by firms each year, this is relatively consistent across the reporting periods.

Cyber-crime is shown to be a key concern, with many of the frauds that are most frequently mentioned (such as computer hacking and phishing) related to information technology. However, some long-established crimes (such as account takeover and card fraud) were also highly-cited threats.

The top reported frauds differ by sector, while some are universal (or near-universal) such as identity fraud and theft, and phishing.

Primary victim of Fraud

Firms are asked to submit who they believe the primary victims of fraud are. The chart displays the top reported victim for each fraud type.

The following chart provides further analysis of primary victim by fraud type for the reporting year 2019/20.

Suspected perpetrator

Firms are asked to submit who they believe the top perpetrators of fraud are. The chart displays suspected perpetrators for each fraud concern for the 3 reporting periods.

The following chart shows the suspected perpetrators by fraud type for the latest reporting year 2019/20.