FCA Heightens Scrutiny and AML Oversight for Annex 1 Firms

The UK Financial Conduct Authority (FCA) has announced increased scrutiny over Annex 1 financial firms, citing concerns regarding their anti-money laundering controls and the potential facilitation of financial crime. Annex 1 entities—which encompass unregulated lenders, safe custody providers, money brokers, and financial leasing companies—are required to register with the FCA for anti-money laundering (AML) supervision. The regulator noted that any businesses conducting these activities without registration must submit an application immediately. According to the FCA, several key compliance weaknesses have emerged across the sector. In particular, the regulator observed that firms frequently rely too heavily on the financial crime frameworks of their parent companies or adopt generic, off-the-shelf procedures. The watchdog emphasized that each entity must independently assess its own risk profile, governance, and operations to establish tailored financial crime controls. The FCA also highlighted risks to consumers and markets stemming from unregulated lending, which is frequently executed through complex structures such as special purpose vehicles (SPVs). Regulated firms conducting business with Annex 1 entities have been advised to maintain thorough due diligence, including directly confirming their registration status. In response to these risks, the FCA is subjecting new Annex 1 registration applications to deeper scrutiny. Applicants must clearly prove their ability to adhere to money laundering regulations, and the FCA warned that registration processing times are expected to lengthen. To expand its sector oversight, the FCA has distributed an information request to approximately 900 Annex 1 firms. This outreach follows an earlier review of 300 firms in late 2025, meaning the regulator has now contacted all registered Annex 1 entities. The FCA stated it will use the collected data and additional intelligence to identify and disrupt financial crime risks across the industry.