| Link(s): | FCA applying increased scrutiny to Annex 1 firms | FCA FCA highlights risks when dealing with unregulated lenders | FCA |
Context
The FCA is concerned about a number of risks among unregulated lenders, safe custody providers, money brokers and financial leasing companies (‘Annex 1’ firms), in particular the potential for them to facilitate financial crime. These types of firms are listed in Annex 1 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs). They must register with the FCA and are supervised for anti-money laundering compliance.
Key points to note and next actions
- The FCA has seen firms rely too heavily on the financial crime controls of their parent company. Each individual firm within a group must assess whether these controls are appropriate for their financial crime risks, governance and operations.
- The FCA is also concerned about the risks to consumers and markets from unregulated lending often conducted through complex structures, including special purpose vehicles.
- The FCA recently highlighted the risks to regulated firms when doing business with Annex 1 firms. Regulated firms should continue to do their due diligence and understand the business of firms they are dealing with – including seeking direct confirmation of their registration status.
- To address these risks, The FCA is closely scrutinising applications to register as an Annex 1 firm, which need to clearly demonstrate that they can comply with the money laundering regulations. Firms should expect registration applications to take longer.
- The FCA Has also sent an information request to around 900 Annex 1 firms to improve its understanding of their activities, business models and risks. This follows on from the work the FCA did with 300 Annex 1 firms in late 2025 and means it will have contacted all registered Annex 1 firms.
- The FCA will use this and other intelligence to identify and disrupt financial crime risks in this sector.