FCA reports upward spiral of suspicious activity reports from financial firms
The number of Suspicious Activity Reports (SARs) submitted by financial firms to the Financial Conduct Authority (FCA) has been steadily increasing year over year since 2017, according to official data.
The figures, disclosed in the recently published FCA report called Financial Crime: analysis of firms’ 2017-2020 REP-CRIM data shows that reports of suspicious activity by staff members concerned, suspicious or aware of illicit financial activity, have risen from 887,500 in the 2017-18 financial year, to 934,136 in FY 2018-19, to 1,028,260 in 2019-20 – this reflects a 16% increase overall during the period from FY 2017-18 to FY 2019-20.
This data was contained in the Financial Conduct Authority’s annual financial crime data return report (REP-CRIM) which was published earlier this month, and analyzed by a Parliament Street think tank. The report directly compared REP-CRIM from over 2,300 different firms between FY 2017-18, FY 2018-19, and, most recently, FY 2019-20.
It revealed that retail banking contributed to over 78% of the SARs reported internally to a nominated officer, and about 85 per cent of the SARs submitted externally to the NCA.
For comparison, the retail lending sector submitted the second highest amount of internal SARs at 204,374 (compared to retail banking’s 804,105), whereas the third highest sector was Wholesale Financial Markets at just 12,062. The next highest in descending order were retail investments, investment management, general insurance and protection and pensions and retirement income sectors – all of which submitted less than 10,000 SARs combined in the most recent financial year observed in the report.
The FCA’s analysis of firms’ 2017-2020 REP-CRIM data also included a breakdown of financial firms’ exposure to Politically Exposed Persons (PEPs). For FY 2019-20, firms reported a total of 89,437 PEPs as customers, a slight increase from the 88,959 the year before. However, this is a significant decrease from the 111,296 PEPs reported two years prior in 2017-18. The FCA admitted that this is likely due to an amendment in guidance to exclude the reporting of certain domestic customers.
A Politically Exposed Person is someone who’s been appointed by a community institution, an international body or a state, including the UK, to a high-profile position within the last 12 months. The Wholesale Financial Markets sector reported the most PEPs over the three years, at 116,937, closely followed by Retail Banking (89,551), then Retail Lending (20,101), Investment Management (18,890), Pensions & Retirement Income (11,233) and finally General Insurance & Protection (1,712).
Wayne Johnson, CEO & Co-Founder of Encompass, comments:
Money laundering and other forms of financial crime present major challenges for banks, and this is an issue which has only been buoyed by the advent of widespread remote working and online banking systems. It is therefore absolutely essential that firms work closely with the FCA to openly and honestly report signs of illicit activity and work with them to take appropriate actions.
For the majority of financial services firms, managing complex Know Your Customer (KYC) and Anti-money Laundering (AML) programmes can be a hugely challenging task, costing time and resources. Key to this effort requires investment in the necessary automated regulation technology to run due diligence on demand, collate critical documents and flag up potentially suspicious transactions, helping banks operate with reduced administrative overheads.