Update on the Economic Crime Levy and how it applies to housing associations

The Economic Crime Levy (ECL) is a new annual charge placed on entities with a UK revenue exceeding £10.2m per year that carry out activities that are regulated by the Financial Conduct Authority (FCA) or HMRC under Money Laundering Regulations 2017 (MLRs). The charge can be between £10,000-£250,000, depending on the size of the entity.

The ECL was introduced as part of measures in the Finance Act 2022, bringing forward plans from the government’s Economic Crime Plan 2019 which aimed to develop a long-term sustainable resourcing model to tackle economic crime. The ECL came into effect this year, with the first payments being due by 30 September.

With regards to exposure to economic crime, housing associations are relatively low risk. However, the kinds of activities which can fall within the scope of the ECL are:

• Housing associations acting as a lender under credit agreements.
• Offering estate agent services, namely where housing associations carry out shared ownership resales in-house.
• Offering debt advice to tenants.
• Broking, where staff might make recommendations about specific financial products or providers.

Given the relatively low risk with regards to economic crime, and that housing associations generate significant public good, we believe a proportionate approach should be taken for the fees applicable to the sector. However, we feel that this has not been the case, and this is therefore a cause for concern for housing associations.

How the ECL is impacting housing associations

The principal activity impacting the sector is the estate agency function that many housing associations adopt when engaging in shared ownership resales in-house. The NHF has spoken to members who are concerned that the amount they have been charged via the fixed Levy rate exceeds the limited revenue generated from the small scale resale activity that triggered the charge. In these cases this makes the in-house resale function unviable and has caused some housing associations to consider outsourcing it or operating resales from a separate limited company at some cost.

Having discussed these issues further with colleagues at Devonshires, we know that a number of housing associations have also been reviewing their position on anti-money laundering registration. This is what exposes entities to the ECL in the first place.

To ensure registration is wholly necessary, housing associations ought to consider closely whether they are involved in activities which do actually fall within the scope of the MLRs. If so, they should consider whether they are able to rely on an exemption in the MLRs for entities carrying out activities on an “occasional or very limited basis”. If this can be relied upon, it dispenses of the need to be supervised for anti-money laundering and therefore the need to pay the ECL.

In order to rely on the exemption, a number of conditions need to be met around turnover derived from the activity, the amount charged to each customer and the nature of the activity within the context of your business, amongst other conditions. There are a number of points to consider, so appropriate legal advice should be sought on this point. Housing associations should review their anti-money laundering position regularly and where there is any change to the business

Next steps

We know that for many housing associations the ECL itself, let alone the administrative costs associated with re-organising internal structures to mitigate its impact, is an additional burden at a time when resources are already under strain.

We have been pursuing HMRC and the FCA to discuss the issue of proportionality in future years of the ECL’s application. We would also like to emphasise the unfortunate lack of mitigation in place to for a sector that is dealing with and trying to alleviate the day to day realities of an acute housing crisis. We will continue to update members on this work as it progresses.