The Financial Conduct Authority (FCA) has imposed restrictions on six unregulated lenders, known as Annex 1 firms, following concerns about their anti-money laundering (AML) policies, controls and procedures during the assessment of their registration applications.

Restrictions on New Business and Customer Activity

The restrictions were imposed at the request of each firm and limit their ability to take on new customers or conduct new business with existing customers.

This includes restrictions on extending existing credit arrangements, reducing the firms’ ability to expand their lending activities while the FCA’s concerns remain unresolved.

Increased FCA Oversight of Annex 1 Firms

The action forms part of the FCA’s enhanced supervision of Annex 1 firms, which operate in sectors that may present heightened risks of money laundering and other financial crime.

These businesses are required to register with the FCA for supervision under the Money Laundering Regulations. However, Annex 1 registration does not mean that they are authorised firms or subject to the wider regulatory framework that applies to FCA-authorised businesses.

The FCA has previously warned Annex 1 firms that they will face increased scrutiny. Firms must demonstrate that they understand the financial crime risks associated with their activities and have effective systems and controls in place to manage those risks. Failure to meet these expectations may result in regulatory action.

FCA Reviews Around 900 Registered Firms

As part of its broader efforts to identify and disrupt financial crime, the FCA is assessing responses to an information request sent to approximately 900 registered Annex 1 firms.

The review is intended to help the regulator identify potential financial crime risks and determine where further supervisory or enforcement action may be necessary.

Due Diligence Responsibilities for Regulated Firms

The FCA has also reminded regulated firms of their responsibilities when conducting business with Annex 1 firms.

Regulated businesses must carry out appropriate due diligence to understand the nature of an Annex 1 firm’s activities and assess the associated risks, in accordance with applicable legislative requirements.

This includes:

• Obtaining direct confirmation from the Annex 1 firm regarding its registration status.
• Independently verifying the information provided by the firm.
• Understanding the nature of the firm’s business and assessing the potential risks.
• Taking appropriate steps to manage any identified financial crime risks.

The FCA has emphasised that registration under the Money Laundering Regulations does not replace the responsibility of regulated firms to conduct their own appropriate due diligence.

FCA Warning on Anti-Money Laundering Compliance

Steve Smart, the FCA’s Executive Director responsible for fighting financial crime, reiterated that Annex 1 firms must be able to demonstrate that they can effectively manage the money laundering risks they face.

He warned that the FCA will intervene where firms are unable to satisfy the regulator that appropriate controls and procedures are in place.

Continued Focus on Preventing Financial Crime

The restrictions imposed on the six firms underline the FCA’s increased focus on financial crime risks beyond the traditionally regulated financial services sector.

Through enhanced supervision, information gathering and intervention, the regulator aims to ensure that Annex 1 firms meet their obligations under the Money Laundering Regulations and that regulated businesses maintain appropriate due diligence when dealing with them.