FCA applying increased scrutiny to Annex 1 firms

The Financial Conduct Authority (FCA) has raised concerns about risks posed by unregulated lenders, safe custody providers, money brokers, and financial leasing companies—collectively known as Annex 1 firms. These firms must register with the FCA for anti-money laundering purposes, and those operating without registration are urged to apply immediately. The regulator highlights the potential for these firms to facilitate financial crime, particularly when relying on parent company controls that may not suit their specific risks or operations.

The FCA warns that unregulated lending, often structured through complex arrangements like special purpose vehicles, poses risks to consumers and markets. Regulated firms are advised to conduct thorough due diligence when engaging with Annex 1 firms, including verifying their registration status. The FCA stresses that each firm must tailor its financial crime controls to its own risks, governance, and operations, rather than adopting generic procedures.

To address these concerns, the FCA is intensifying its scrutiny of Annex 1 firm registration applications. Firms must provide clear evidence of compliance with money laundering regulations, and the regulator expects these applications to take longer to process. This move follows earlier engagement with 300 Annex 1 firms in late 2025 and aims to strengthen oversight in the sector.

The FCA has issued an information request to approximately 900 Annex 1 firms to better understand their activities, business models, and associated risks. This initiative builds on prior work with 300 firms and ensures all registered Annex 1 firms are reviewed. The regulator will use this data, alongside other intelligence, to identify and disrupt financial crime risks within this sector.