27 Feb Understanding the Economic Crime Levy: The UK’s New Approach to Combating Money Laundering?
The UK government has introduced the Economic Crime Levy (ECL) to strengthen its fight against money laundering. This annual levy targets entities supervised under the Money Laundering Regulations (MLR) with UK revenue exceeding £10.2 million. The ECL is structured as a fixed fee based on the size of the entity, with four size bands ranging from small (under £10.2 million) to very large (over £1 billion). The levy aims to raise £100 million per year to fund anti-money laundering initiatives and is a key component of the government’s 2019 Economic Crime Plan. As the first payments are due in the financial year 2023/24, affected firms must understand their obligations under the ECL to ensure compliance and contribute to a safer financial environment.
Understanding the Economic Crime Levy
The Economic Crime Levy (ECL) is a new UK government initiative set to raise over £100 million annually to enhance the country’s anti-money laundering efforts. Starting in the financial year 2023/24, the levy targets firms subject to the Money Laundering Regulations with an annual turnover exceeding £10.2 million. These entities will contribute an amount proportional to their UK revenue, with contribution bands ranging from £5,000 to £250,000 based on the size of the firm.
The ECL aims to support various initiatives, such as the Suspicious Activity Reports reform program and the expansion of the UK’s Financial Intelligence Unit. By improving ICT infrastructure, data analytics capabilities, and increasing skilled staff, the levy will support the UK’s capacity to detect, prevent, and deter economic crime.
Who is Affected by the ECL?
The Economic Crime Levy (ECL) impacts entities supervised under the Money Laundering Regulations (MLR) with a UK revenue exceeding £10.2 million annually. The sectors expected to be affected include credit institutions, financial institutions, auditors, insolvency practitioners, external accountants, tax advisers, independent legal professionals, trust or company service providers, estate agents, letting agents, high-value dealers, casinos, auction platforms, art market participants, and crypto asset exchange providers.
Preparing for the ECL
To prepare for the ECL, affected entities need to follow these steps:
- Registration: Entities must register for the ECL if they are supervised by HMRC for MLR at any point during the financial year and are not supervised by the FCA or the GC for MLR, with UK revenue equal to or greater than £10.2 million. Registration is a one-time process, but an annual return and payment are required each year that the UK revenue exceeds the threshold.
- Submitting a Return: Entities must submit an annual return that includes the length of the accounting period, UK revenue for that period, any changes in MLR-regulated activity, and the ECL band and amount due. Returns must be submitted by 30 September each year.
- Paying the ECL: The ECL is paid as an annual fixed fee based on the entity’s size and UK revenue. The payment covers the previous financial year and must be made by 30 September each year. If payment is not made by the due date, HMRC may charge interest and penalties.
It’s important to understand the ECL collection process and identify the relevant collection authority, which could be the FCA, the Gambling Commission, or HMRC, depending on the entity’s supervision under MLR.
ECL Bands and Fees
The Economic Crime Levy (ECL) is divided into four band sizes based on an entity’s UK revenue in their accounting period ending in the previous financial year. The bands are as follows:
- Small: Does not exceed £10.2 million (No fee)
- Medium: Greater than £10.2 million but does not exceed £36 million (£10,000 fee)
- Large: Greater than £36 million but does not exceed £1 billion (£36,000 fee)
- Very Large: Exceeds £1 billion (£250,000 fee)
It’s crucial for entities to accurately determine their ECL band to ensure they pay the correct fee. This involves taking into account all UK revenue, not just that derived from activities and services regulated under the Money Laundering Regulations (MLR).
Utilising the Funds Raised by the ECL
The funds raised by the ECL are intended to support the UK’s anti-money laundering (AML) supervisory regime and law enforcement capabilities. Specifically, the levy aims to raise £100 million per year to fund government initiatives outlined in the 2019 Economic Crime Plan (ECP) to help tackle money laundering. The AML-regulated sector, being most exposed to money laundering risk, is considered the principal contributor to these reform initiatives, which are designed to benefit the sector and make the UK a safer place to do business.
Conclusion
The Economic Crime Levy is a critical step in the UK’s efforts to combat economic crime, especially money laundering. Businesses in the AML-regulated sector must stay informed and prepared to meet their obligations. Timely compliance with the ECL is essential to avoid penalties and contribute to a safer financial environment.
For those looking to deepen their understanding of Anti-Money Laundering regulations, KYC Lookup offers comprehensive courses tailored to enhance professional knowledge and skills. These courses are designed to equip individuals with the necessary tools to effectively manage AML risks, ensuring not only compliance with the ECL but also a proactive approach to safeguarding against economic crime.
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