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A change in guidance has triggered a decrease in the amount of politically exposed persons (PEPs) being reported to the UK’s Financial Conduct Authority (FCA). However, analysis shows that there has been an increase in the number of Suspicious Activity Reports (SARs).
The FCA, which supervises 22,000 financial firms, has released a new document analysing annual financial crime data return (REP-CRIM) between 2017 and 2020.
REP-CRIM returns are required by the FCA from banks, building societies, mortgage lenders and certain other types of firms, and are intended to help the FCA in its risk-based approach to financial crime supervision.
This analysis aims to provide money laundering reporting officers and other compliance professionals insights on trends and developments, helping to inform the arrangements and risks of their respective firms.
The FCA’s analysis found that, overall, firms reported 89,000 PEPs as customers in 2019/20 and 2018/2019. This was a substantial decrease from approximately 111,000 PEP reports in 2017/18.
This is partly attributed to a change in guidance in 2017, which excluded the reporting of certain domestic customers as PEPs.
This guidance advised that firms should only treat those in the UK who hold “truly” prominent positions as PEPs, while not applying this definition to local government, more junior members of the senior civil service, or anybody in the military beyond those in the most positions.
More than one-third of the total PEPs reported are concentrated within wholesale financial markets. This is followed by retail banking and retail lending, which contributed 31 percent.
Meanwhile, 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, marking a 30 percent decline overall during the three year period.
The data showed that retail banking bears the brunt of high-risk customer reporting in the financial sector, with 390,420 reports in 2019/20 — over half of the overall amount.
It is possible that the decline in numbers could be attributed to de-risking, when banks terminate, restrict or deny services to certain types of customers so that they have lower risk exposure.
For example, Her Majesty’s Treasury response to the Payments Landscape Review, published earlier this week, noted respondents had raised de-risking among banks as an issue, while also calling for better application of anti-money laundering rules.
Overall, the data also shows that there has been an increase in the number of SARs reported internally to money laundering reporting officers (MLROs), as well as externally to the National Crime Agency.
However, there has also been a decline in the number of SARs disclosed to the NCA under the Terrorism Act 2000.
Again, retail banking made up the majority, contributing more than 78 percent of the SARs that were internally reported to MLROs, as well as about 85 percent of the SARs reported to the NCA.
In further analysis, the FCA reported automated sanctions screening is increasing year on year, with a 16.5 percent increase over the three reporting periods. Retail banking rated highly for using automated reporting here, with just six firms stating that they do not.
The REP-CRIM also requires firms to report the number of confirmed true sanctions alerts that matched against the firm’s customer, client or payment. The numbers reported should relate to any matches against any relevant sanctions lists. It found true payment sanction matches almost doubled from 2018/19 to 2019/20, from 2,775 to 5,438.
Breaking the data down by country, Pakistan was rated highest among the firms the FCA supervises for jurisdictional risk, followed by the Bahamas, Panama and the Russian Federation. Australia, Austria, Canada, Finland, Ireland and Spain had the fewest businesses on its list deemed high risk.
