The Economic Crime Levy (ECL) was introduced in the 2020 Budget to help fund the delivery of reforms committed to by the government in its 2019 Economic Crime Plan.¹ Going forward, the ECL is payable annually by "relevant persons"² which carry on particular types of activities under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) and which have UK revenue of more than £10.2 million for the relevant financial year³ (in-scope firms).

The thinking behind the ECL is to require businesses that operate in sectors which are a higher risk of being used to launder criminal property to contribute to the costs associated with combatting those risks⁴ rather than them being borne solely by the taxpayer.⁵

In-scope firms have recently had to review their ECL liabilities for the financial year 1 April 2022 to 31 March 2023, in preparation for the first deadline for payment of the ECL, which was 30 September 2023. 

As the ECL will now fall due every year, it will be prudent for all firms (and, in our view, especially FCA-regulated firms) to continue to assess their business and the activities which they are undertaking to ensure that any permissions they hold are being used and are needed moving forward, as the ECL will be automatically applied by the FCA to certain permissions (those which reflect activities within scope of the MLRs). As the ECL is based on a firm's total revenue in the UK, the ECL liability applied could be significant for firms (totalling up to £250,000 annually) and so this is something that firms may wish to consider in terms of future planning, particularly where the revenue generated by specified activities is not significant as a proportion of the overall revenue generated by the firm, as the annual levy may make certain business lines unprofitable overall.

We have outlined the regulatory framework for the ECL to help guide firms in understanding how to navigate the annual levy looking ahead. This article will address: 

• What is the purpose of the ECL? 
• Who is liable to pay the ECL? 
• What is the process for calculating and paying the ECL?
• What are the relevant ECL threshold and bands to be aware of? 
• How can firms challenge any imposed ECL liabilities? 
• What are the consequences of non-payment or delayed payment of the ECL? 

What is the purpose of the ECL?

Through the ECL, the government aims to raise approximately £100 million per annum and develop a sustainable private-public sector resourcing model for tackling economic crime.⁶ We understand that income from the levy has been allocated to train and resource 500 new financial investigators across the UK and to improve financial crime awareness within local police forces, in anticipation of more financial crime investigations and prosecutions.

The UK's focus on tackling economic crime (with money laundering at its heart) is particularly important in the current climate. Concerns that criminals may try to exploit changes created by the UK's exit from the EU, together with the fact that this is likely to encourage UK businesses to seek expansion into new markets, jurisdictions and sectors which may increase the foreign bribery threat, has prompted the government's focus on taking pre-emptive action to minimise this risk.⁷

The ECL was implemented in the Finance Act 2022 and the procedure around assessment, payment and collection of the ECL is set out in the Economic Crime (Anti-Money Laundering) Levy Regulations 2022 (2022 Regulations) (as amended by the Economic Crime (Anti-Money Laundering) Levy (Amendment) Regulations 2023). 

Who is liable to pay the ECL?

Firms will be in-scope if they carry on, or have carried on at some point during the previous levy year (each levy year will run from 1 April to 31 March), any "regulated business", as defined by the MLRs,⁸ where their total UK revenue exceeds £10.2 million (AML-regulated smaller firms which generate less than £10.2 million in turnover will not be liable, but those that are close to the cap should be mindful that they may fall liable in future years and so should build this into future planning).⁹ This includes all revenue derived from a firm's UK activities (both its AML-regulated activities and activities which are not AML-regulated).¹⁰ There are currently no minimum turnover requirements for the regulated activities themselves and so, even where regulated activities form a very small proportion of annual turnover, the firm will still fall within scope. 

"Regulated business" means a business carried on by a relevant person within the meaning of regulation 8(1) of the MLRs. The range of firms is relatively broad and includes credit institutions, financial institutions, auditors, insolvency practitioners, external accountants, tax advisers, independent legal professionals, estate agents and letting agents, casinos, art market participants and cryptoasset exchange providers, amongst others.¹¹ In short, an entity is in-scope if it is, or should be, AML-regulated.¹²

Firms should be aware that, if they are AML-regulated for part of the levy year (for example, because the firm joined or left the regulated sector during the levy year), then they will only need to pay the appropriate fixed fee on a pro rata basis (see further below "Thresholds and bands").¹³

Importantly, if a firm has registered for AML supervision or obtained certain FCA permissions on a precautionary basis, perhaps in respect of a planned business line or activities which have not yet been undertaken, then now would be a sensible time to review whether the business should be subject to the MLRs in respect of its current activities – this is especially so given that the ECL is based on total revenue (and so can be disproportionately high, where "regulated business" is just a small part of overall business). 

We are mindful that the definitions of regulated activities within the MLRs can be ambiguous and it will often be unclear initially whether the MLRs apply, which means that there is often scope for purposive analysis. Your firm may consider a review to be particularly important as the need for funding to prevent financial crime is only likely to increase,¹⁴ and so the levy is likely to rise in future years. For some clients, we have seen this weigh into their assessment of whether or not to continue a particular business line or adjust how it is conducted, such as in order to come within an MLR's exemption.¹⁵

What is the process for calculating and paying the ECL?

The government has appointed three statutory AML supervisors: His Majesty's Revenue and Customs (HMRC), the Financial Conduct Authority (FCA) and the Gambling Commission to collect the ECL. Each supervisor will be responsible for collecting the ECL from the regulated population it supervises¹⁶ and, additionally, HMRC will also take on responsibility for in-scope firms which are supervised by other professional bodies (such as legal and accountancy firms).¹⁷ The process for ECL collection differs depending on the supervisor. In each case, in-scope firms will be required to submit an ECL return by providing information relating to its revenue to the relevant supervisor. A summary of this is as follows: 

• FCA: Firms supervised by the FCA should have received a letter asking them to submit their data via the new Reg Data Report (FIN074).¹⁸ The ECL will then be added to their regulatory fees and levies invoice, payable through the FCA's online invoicing portal.¹⁹ All in-scope firms must have paid their ECL for the first levy year by 30 September 2023. We anticipate that this procedure will remain the same in the next levy year. However, this remains to be seen as the processes for challenge are still being played out. 
• HMRC: In-scope firms which are supervised by HMRC or any of the professional bodies are required to register for the ECL and submit their data using the online ECL service via the HMRC Government Gateway.²⁰ The ECL was required to be paid for the first levy year online via the same process as firms use to pay their tax liabilities²¹ by 30 September 2023.²² Firms which do not meet the £10.2 million threshold do not need to register for the ECL, even if they are supervised by HMRC or any of the professional bodies for money laundering purposes.²³
• Gambling Commission: Firms supervised by the Gambling Commission will have received information regarding how they should submit their returns.²⁴ All firms supervised by the Gambling Commission must make an ECL return, even if their UK revenue does not meet the £10.2 million threshold.²⁵

Thresholds and bands

An in-scope firm's ECL liability will depend on the amount of UK revenue that it reports via its ECL return. Firms are categorised into small, medium, large and very large firms depending on the amount of UK revenue reported. There is a fixed fee which is applicable to each of these categories. For the first levy year, these fees are as follows:²⁶

How can firms challenge their ECL liabilities?

Whether firms have a right to have their ECL liability reviewed and, if so, the applicable process, is dependent on the relevant supervisor.  A quick summary is set out as follows:

• HMRC and Gambling Commission: Firms are entitled to challenge decisions made by HMRC in respect of the levy, including whether and how much they are required to pay. A firm must appeal within 30 days of being notified of the decision and HMRC must determine whether to uphold, vary or cancel the appealable decision and provide the firm with its conclusion, with reasons, within 45 days of the challenge. Firms which are supervised by the Gambling Commission or HMRC are permitted to appeal to the First-tier Tribunal to challenge an "appealable decision"²⁸ (including whether a person is liable to pay the ECL and the amount).²⁹ The appeal must be made within 30 days. 
• FCA: The 2022 Regulations do not establish a review process in respect of the FCA, but firms are entitled to seek review of decisions made. At present, the FCA has not set out whether, or how, firms might apply for an ECL-related decision to be appealed and firms should engage with its supervisor or the relevant finance teams on a case-by-case basis. The FCA does have the power to amend, replace or withdraw a notification of levy payment and it will be interesting to see how and when it chooses to do so.³⁰ It would be useful if, prior to the next round of submissions and notifications, the FCA issues further guidance to make clear the process in place for review requests.

Firms which are supervised by the FCA do not have a right to appeal under the 2022 Regulations and, accordingly, would be required to challenge any decision via judicial review. In practice, it is anticipated that firms will engage in dialogue with the FCA about the reasons why the firm does not consider an ECL assessment has been correctly made prior to challenging any decision more formally – in the same way firms currently approach potential challenges to the various levies raised by the FCA. 

What are the consequences of non-payment or delayed payment of the ECL?

The 2022 Regulations provide for the relevant supervisor to impose financial penalties on an in-scope firm which fails to comply with its obligations without reasonable excuse.³¹ This includes where a firm fails to submit an accurate ECL return (or to pay) on time, fails to comply with recording-keeping requirements, or fails to provide information and documentation requested by its supervisor under the regulations.³²

The amount of any financial penalty will depend on the nature of the infringement. The late submission of the ECL return gives rise to a penalty of £250 if not submitted on the due date, and a further penalty amounting to 5% of the unpaid ECL if still not submitted within three months of the due date.³³ The late payment of the ECL gives rise to a penalty of £250 if unpaid by the due date, an additional £250 penalty if it remains unpaid 30 days after the due date and, if still unpaid three months after the due date, then a penalty amounting to 5% of the unpaid levy.³⁴ In addition, the late payment of the ECL will attract interest to accrue on the unpaid amount.³⁵ Non-payment of an ECL will be treated as a civil debt.³⁶

If you are concerned about whether you need to be AML-regulated, or if you are concerned that you are regulated and you may not need to be, or may benefit from an exemption, please feel free to reach out to one of our team who will be more than happy to assist. 

1. https://www.gov.uk/government/publications/budget-2020-documents/budget-2020#budget-policy-decisions paras. 1.58, 2.54.
2. Under reg. 8(2) relevant persons include credit and financial institutions, auditors, insolvency practitioners and accountants, legal professionals, trust and company service providers, estate agents, high-value dealers and casinos.
3. "Get ready for the Economic Crime Levy," GOV.UK, Updated July 10, 2023.
4. Economic Crime Levy: Funding new government action to tackle money laundering. Consultation Document, July 2020, para. 1.6.
5. Economic Crime Levy: Funding new government action to tackle money laundering. Consultation Document, July 2020, para. 1.5.
6. Explanatory Note to the Economic Crime (Anti-Money Laundering) Levy Regulations 2022, para 7.1. 
7. Economic Crime Plan 2019-2022, July 2019, para. 1.21. 
8. Finance Act 2022, s.53 (read with s.65).
9. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 54. 
10. Economic Crime (Anti-Money Laundering) Levy: Consultation Response, September 2021, para 5.63
11. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, reg. 8(2).
12. Although this is not specifically stated in the legislation, there appears to be no bar to requiring a firm to pay the levy retrospectively in instances where they are found to be in breach of reg. 56 of the MLRs i.e. by failing to register prior to conducting regulated activities. Indeed, this may be a second breach under the requirements of the 2022 Regulations, which may generate a further financial penalty.
13. Economic Crime (Anti-Money Laundering) Levy: Consultation Response, September 2021, para. 2.31. 
14. HM Treasury confirmed in its response to the consultation on ECL that the bands will be reviewed periodically (but not before the first review of the ECL by the government which is intended to take place by the end of 2027). However, fee rates may be updated before this stage: if the levy is not yielding the desired £100 million per year; to reflect the availability of new data; and/or in response to wider macro-economic changes (such as inflation).
15. Given this, it is prudent that firms authorised by the FCA, in particular, review their suite of permissions on a regular basis (in line with the FCA's "use it or lose it" approach which requires firms to proactively review their regulatory permissions and prove they are carrying out the regulated activities they are permitted) to ensure that it does not unnecessarily hold any permissions which might bring it within scope of the MLRs and which may render unexpected ECL liability. 
16. The FCA is responsible for collecting the levy from the sectors it supervises – for example, financial services firms authorised or registered by it (such as authorised consumer credit firms or firms which provide relevant cryptoasset services). HMRC is responsible for collecting the levy from the business sectors it supervises, such as money service businesses, currency exchange services, high-value dealers and trust or company service providers. The Gambling Commission is responsible for collecting the levy from the sectors it supervises, such as casinos and betting businesses. Certain businesses may be supervised by two regulators, such as the FCA and HMRC. Where that is the case, the business concerned must register with the FCA for the purpose of the levy. 
17. Economic Crime (Anti-Money Laundering) Levy: Consultation Response, September 2021, para. 2.28.
18. "FCA to collect Treasury’s economic crime levy (Anti-Money Laundering) from July," FCA, March 9, 2023.
19. "Annual fees: online invoices," FCA, May 7, 2015. 
20. "Get ready for the Economic Crime Levy," GOV.UK, Updated July 10, 2023.
21. "Get ready for the Economic Crime Levy," GOV.UK, Updated July 10, 2023.
22. "Get ready for the Economic Crime Levy," GOV.UK, Updated July 10, 2023.
23. "Get ready for the Economic Crime Levy," GOV.UK, Updated July 10, 2023.
24. "Get ready for the Economic Crime Levy," GOV.UK, Updated July 10, 2023.
25. "The Economic Crime Levy," Gambling Commission, Updated October 19, 2023.
26. HMRC Policy paper – Get ready for the Economic Crime Levy. 
27. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, regs. 26-29.
28.  The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 30.
29. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 30.
30. See reg. 6(3) (Payment of the Levy) Economic Crime (Anti-Money Laundering) Levy Regulations 2022 (as amended). 
31. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 20. 
32. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 20(1).
33. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, schedule 1, paras. (a), (h). 
34. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, schedule 1, paras. (b), (i) and (k). 
35. For firms supervised by the FCA: The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 7. Interest is calculated at a rate of 5% over the Bank of England base rate from time to time. For firms supervised by the Gambling Commission: The Economic Crime (Anti-Money Laundering) Levy Regulations 2022, reg. 11. Interest is calculated at a rate set by s.101 of the Finance Act 2009 (Late payment interest in sums due to HMRC). For firms supervised by HMRC: Finance Act 2009, s.101 (as described by the Explanatory Note to the Economic Crime (Anti-Money Laundering) Levy Regulations 2022, para. 3.6).
36. Economic Crime (Anti-Money Laundering) Levy: Consultation Response, September 2021, para. 6.40.