The UK’s National Crime Agency (the NCA) has published its 2018 annual report on Suspicious Activity Reports (SARs). The report follows the recent publication of the Financial Action Task Force (FATF)’s mutual evaluation of the UK’s anti-money laundering measures, which examined the UK’s SAR regime.
Increasing volume of SARs in 2018, but mixed picture across industries and limited return on investment
In the 2017-2018 reporting year, the number of SARs reported to the NCA increased by almost 10% to over 460,000. However, despite the overall increase, detailed statistics released by the NCA reveal significant differences between industries.
As you would expect, financial institutions continue to file the vast majority of SARs, being responsible for over 95% of the SARs filed. Reporting by accountants and lawyers remains low, filing under 2% of the SARs between them in the period. Although accountants increased the number of SARs filed by over 13%, the number of SARs filed by lawyers fell by almost 12% against the previous year.
FATF and other commentators have expressed concern that accountants and lawyers may be under reporting suspicious activity. As explained below, the NCA is planning to continue targeted engagement with these sectors with the aim of increasing reporting.
The NCA also reported a 20% increase in Defence Against Money Laundering (DAML) requests to over 22,000 over the last year. These DAML requests led to 52 arrests and almost £52 million being denied to criminals. However, UK banks alone are understood to be spending over £5 billion a year on financial crime compliance, raising questions as to whether the relatively low number of resulting arrests and value of cash restraints and seizures is a poor return on investment.
Further engagement with the private sector in 2019
A key concern in recent years about the UK’s SAR regime has been that whilst the volume of reports (particularly from the financial sector) is at a record high, the quality and usefulness of the SARs filed has been mixed.
The NCA is increasing its engagement with the private sector, with the aim of both increasing reporting and the quality of SARs. This engagement includes:
- regular meetings of engagement groups for the banking, legal and accountancy sectors;
- producing industry specific webinars on SARs; and
- promoting the UK government’s Flag It Up campaign for the accountancy, legal and property sectors.
The NCA noted that accountants and lawyers who recognised the Flag It Up campaign were twice as likely to have submitted a SAR, suggesting this may be a successful tool to remedy the perceived under-reporting by these sectors.
Increased investment and a new IT system, but no structural change to SAR handling
The NCA defended the UK’s system of distributed analysis of SARs (where SARs are analysed by individual law enforcement agencies). FATF expressed concerns that this model risks SAR data not being fully exploited, however the NCA has maintained that it is the right model for the UK.
The NCA is intending to create an additional 46 posts within the Financial Intelligence Unit to handle the increasing volume, and increasingly complex nature, of SARs it receives.
The NCA is also intending to continue to support the Home Office SARs Reform Programme, a key element of which is to significantly upgrade the SAR IT systems. The industry has long considered the IT systems to be outdated and unsuitable in many circumstances.
The new IT system is also intended to allow feedback to be provided to SAR reporters on the usefulness of SARs filed. This addresses one of FATF’s recommendations and should assist the private sector in filing better quality SARs.
An improved IT system and the facilitation of greater feedback to SAR reporters should be a positive development for all submitters and, in particular, high volume reporters, such as financial institutions. However, the quality of SARs filed is also a product of the UK’s legal regime. Although the Law Commission is currently preparing proposals for changes to the SAR regime, unless amended we anticipate that reporters will continue to file SARs to comply with their legal obligations.
Whilst the NCA is focussing on engaging with specific sectors, financial institutions should not expect a light touch. Anti-money laundering is one of the FCA’s strategic priorities for 2018/19, both across the financial sector as a whole and specifically within the wholesale financial markets. The FCA’s increasing scrutiny and focus on anti-money laundering controls, together with the NCA’s ongoing work, will ensure that anti-money laundering compliance remains in the spotlight with firms expected to file SARs appropriately and with content that is useful to law enforcement.