The UK’s Economic Crime Plan, introduced as a comprehensive strategy to combat financial crime, has had a considerable impact on high-risk businesses. Industries like cryptocurrency, gaming, CBD, and money service businesses (MSBs) are now subject to stricter regulations and increased scrutiny. This article explores how the Economic Crime Plan affects these high-risk sectors, the compliance challenges they face, and how businesses can navigate the evolving regulatory landscape.
Understanding the UK’s Economic Crime Plan
Launched in 2019 by the UK government in collaboration with financial industry leaders, the Economic Crime Plan outlines a strategy with seven priority areas aimed at reducing economic crime. These include measures to improve law enforcement, enhance intelligence-sharing, and tighten anti-money laundering (AML) controls. The plan’s overarching goal is to make the UK a “hostile environment” for financial crime while safeguarding the country’s economic integrity and reputation as a global financial centre.
For high-risk businesses, this means heightened regulatory requirements and more comprehensive risk assessments, particularly in sectors where the risk of money laundering, fraud, and other financial crimes is inherently higher.
Key Areas of the Economic Crime Plan Affecting High-Risk Sectors
High-risk businesses in the UK face stringent obligations under the Economic Crime Plan. Some of the most impactful areas include:
1. Enhanced Due Diligence (EDD) Requirements
Under the plan, financial institutions must apply Enhanced Due Diligence for clients involved in high-risk industries. This goes beyond standard customer due diligence (CDD) to include in-depth background checks, verification of the source of funds, and continuous monitoring of transactions. For instance, MSBs, CBD companies, and gambling businesses must provide more detailed financial documentation to prove the legitimacy of their operations.
2. Increased Scrutiny on Transactions and Financial Relationships
Financial institutions are required to adopt a proactive approach when monitoring the transactions of high-risk businesses. This involves implementing sophisticated monitoring systems to detect suspicious activity and ensure compliance with AML regulations. For many high-risk businesses, this can lead to more frequent reporting obligations and transaction audits. Learn more about compliance strategies in high-risk sectors in our guide to financial regulations for high-risk businesses.
3. Public and Private Sector Collaboration
The Economic Crime Plan emphasises collaboration between government agencies and private sector entities. As part of this initiative, high-risk businesses can expect closer collaboration with financial institutions, law enforcement, and regulatory bodies. This increased connectivity enables quicker identification of fraudulent activity and helps businesses stay informed on regulatory changes that may affect their operations.
Challenges High-Risk Businesses Face under the Economic Crime Plan
The increased regulation and scrutiny bring unique challenges for high-risk businesses. Some of the primary issues include:
Compliance Costs and Operational Complexity
Meeting the requirements of the Economic Crime Plan often involves significant investment in compliance systems, staff training, and documentation processes. This can be financially burdensome, especially for small and medium-sized enterprises (SMEs) in high-risk sectors. The cost of implementing AML controls, conducting ongoing monitoring, and filing reports can strain resources, impacting overall business efficiency and profitability.
Difficulty Securing Banking Partnerships
Due to the perceived risks associated with high-risk industries, many financial institutions are hesitant to offer services to these businesses. Even with full compliance, companies in sectors like cryptocurrency and adult entertainment face challenges in securing stable banking partnerships. To navigate these complexities, consider our high-risk business banking services, which provide tailored banking solutions designed for regulated high-risk industries.
Managing Reputational Risk
The reputational risk associated with financial crime has led some banks to adopt “de-ris
