Guide for Submitting the Yearly Financial Statement for UK Cryptocurrency Enterprises (As of February 15, 2022)
The UK Financial Conduct Authority (FCA) has extended its Annual Financial Crime reporting obligations to approximately 7,000 businesses, effective from March 30th, 2022. This includes cryptoasset exchange providers and custodian wallet providers.
Under the FCA's REP-CRIM framework and related Directions, these businesses must submit annual reports detailing comprehensive information on financial crime risks encountered and controls applied. The reports are to be submitted using appropriate online systems accessible from the FCA's website, such as RegData.
Scope of Reporting
Cryptoasset exchange providers and custodian wallet providers registered with the FCA must report on incidents and risks related to financial crime, including money laundering and sanctions evasion.
Sanctions Compliance
Firms must proactively upgrade systems to monitor, detect, and report any breaches of financial sanctions. This includes real-time transaction monitoring and the use of blockchain analytics tools to identify designated persons and sanctioned jurisdictions.
Data Granularity and Reporting Complexity
The reporting standards demand detailed, granular reporting about account ownership, roles in legal arrangements, and account classification. This underscores a regulator trend toward richer data reporting that will likely influence financial crime reporting for crypto firms.
Annual Financial Crime Report (REP-CRIM) Directions
The FCA mandates that registered firms provide consolidated reports annually detailing:
- The nature, scale, and frequency of financial crime risks encountered.
- Specific measures taken to mitigate risks, including compliance with sanctions and anti-money laundering (AML) requirements.
- Any suspicious activity reports (SARs) filed and cooperation with law enforcement agencies.
Complementary Prudential and Compliance Rules
The FCA’s proposed prudential requirements (CP25/15) indirectly affect reporting by establishing capital rules to ensure financial resilience, which relate to risk management practices, including those for financial crime risks.
Regulatory Emphasis on Custodial Services
The FCA distinguishes between custodial (holding customer cryptoassets) and non-custodial services, applying more stringent oversight and reporting for custodial wallet providers due to the higher risk of misuse or theft.
Operation Jurisdictions and Customer Information
Operation jurisdictions include jurisdictions within which the company operates at the end of the reporting period, as well as those jurisdictions considered 'high-risk' in which the company operates.
Customer information includes the total number of relationships with politically exposed persons and other high-risk customers, the number of customer relationships in particular geographical areas, and the number of customer relationships refused for financial crime reasons during the reporting period.
Sanction-Specific Information
Companies can choose to fill in "sanction-specific information" but are not required to do so. This information includes details about the automated system(s) the company uses to conduct screening across relevant sanctions lists, information about actual sanction matches detected during the reporting period, and information about repeat customer sanctions screening.
REP-CRIM Return Requirements for Cryptoasset Businesses
The FCA has published special Directions setting out the REP-CRIM return requirements for cryptoasset businesses. A single REP-CRIM return may be submitted for a group of companies, but only when each company within the group is subject to the same requirements.
First Annual Financial Crime Report
Affected businesses, including cryptoasset exchange providers and custodian wallet providers, are required to submit their first Annual Financial Crime Report within 60 business days of their account referencing date, starting from March 30th, 2022.
The REP-CRIM provides key information to help the FCA assess the nature of financial crime risks, including exposure to politically exposed persons (PEPs), sanction screening controls, jurisdictional risks, suspicious activity reports, resources to fight financial crime, and an insight into fraud risks.
- Given the extension of the Annual Financial Crime reporting obligations by the FCA to over 7,000 businesses, including cryptoasset exchange providers and custodian wallet providers, these businesses must submit annual reports detailing comprehensive information on financial crime risks encountered and controls applied in the scope of their operations.
- The reports, submitted using appropriate online systems accessible from the FCA's website, such as RegData, should include detailed, granular reporting about account ownership, roles in legal arrangements, and account classification, as well as the nature, scale, and frequency of financial crime risks encountered, specific measures taken to mitigate risks, any suspicious activity reports (SARs) filed, and cooperation with law enforcement agencies.
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