Are you prepared for the UK Economic Crime Levy?

HM Treasury published draft regulations, together with an explanatory memorandum, on 28 February that will revise and make further provision for the assessment, payment, collection, and enforcement of the Economic Crime Levy (ECL).

The aim of the levy, which will be paid by the anti-money laundering (AML) regulated sector, is to raise £100m a year to help fund "new and uplifted" anti-money laundering and economic crime-tackling capabilities in line with the government's objectives under its 2019 Economic Crime Plan.

What entities will be required to pay the ECL and what steps will they need to take to comply with the ECL process based on the latest guidance from HMRC and the Financial Conduct Authority (FCA)?

Which entities are in scope?

Entities within scope of the ECL include individuals, partnerships and companies that are (in each case) regulated for AML purposes under the Money Laundering, Terrorist Financing and Transfer of Funds Regulation 2017 (MLRs) and fall within the "medium", "large" or "very large" revenue bands. These bands are based on total UK revenue for the relevant accounting period.

The application of the ECL is based purely on revenue rather than risk. The levy does not, therefore, reflect the exposure of any particular entity to financial crime and will impact AML-regulated businesses and individuals operating across a variety of sectors that meet the revenue threshold. This includes, for example, credit institutions, financial institutions, auditors, insolvency practitioners, law firms, external accountants, tax advisers, cryptoasset exchange providers and custodian wallet providers.

How much is the ECL?

The amount payable will be determined by reference to the entities' size band:

The ECL will first be charged on entities that are regulated at any point during the financial year from 1 April 2022 to 31 March 2023, and the amounts will be payable in September following the end of each financial year. Therefore, first payments for the ECL levy for the 2022-2023 financial year will be made in September 2023.

Who will collect the ECL?

The ECL will be collected by either HMRC, the FCA or the Gambling Commission (GC). Each body will collect for their existing AML-regulated populations, with HMRC also acting as levy collector for entities currently regulated by any of the 22 legal and accountancy professional body supervisors listed in this Annex.

It is important that "in-scope" entities identify who their collection authority for the ECL is as this will determine the procedure they need to follow. For example, payments institutions whose activities are limited solely to money remittance are supervised by HMRC for AML purposes and must follow the arrangements set down by HMRC. If an entity is supervised by either the FCA or the GC, it must follow their ECL process even if HMRC also supervises some of its business activities.

On 21 March, HMRC published guidance on the ECL process for the entities it supervises, with more detailed guidance expected to be published later this year. Guidance for FCA regulated and registered entities is currently limited to the information set out in the FCA's announcement of 9 March 2023. In summary:

• Entities regulated for AML by HMRC or by one of the 22 professional body supervisors (listed in the Annex) Small entities are not required to register with HMRC. Medium, large or very large entities must register online with HMRC for the ECL. Following a single registration, they will be provided with a reference number starting with "X". Entities that have registered for ECL are also required to submit an online return by 30 September each year, even if the entity does not meet the threshold for paying the ECL in that year. After submitting a return, the entity will be able to pay its ECL liability online (if any) in the same way as it normally pays its tax liability. The ECL is due by 30 September each year.
• Entities regulated by (or registered with) the FCA. These entities must submit their data via new Reg Data Report (FIN074) from 1 April 2023 to ensure they are charged the correct amount. A failure to submit in time may result in a £250 administrative fee. Those firms registered with the FCA, as an annex 1 financial institutiononly, will receive a letter from the FCA to report their data. Invoicing will be conducted as part of the FCA's normal invoicing process and the ECL will be an additional line on the invoice. Impacted firms (those that were subject to the MLRs between 6 April 2022 and 5 April 2023) will see the new levy appear on their FCA invoices from July 2023.

Osborne Clarke comment

Businesses and individuals within scope of the ECL should ensure that they are taking the steps required by their supervisory body for collection of the ECL. For FCA regulated or registered entities, this includes submitting FIN074 from 1 April 2023. Entities that fall under HMRC's supervision should keep an eye out for HMRC's detailed guidance on how to register for the ECL when it is published later this year. Entities supervised by the GC for AML should similarly keep a watching brief for any guidance published by the GC on the ECL process.

The government has undertaken to conduct a review of the ECL by the end of 2027. It is possible, therefore, that we may see entities beyond the AML-regulated sector being brought within scope of the ECL in the future.