UK FCA statement highlights risks when dealing with unregulated lenders

The UK Financial Conduct Authority (FCA) has published a statement reminding regulated firms of the risks when dealing with unregulated lenders and other "Annex 1" firms. Annex 1 firms are registered with the FCA solely for anti‑money laundering (AML) purposes and are not subject to the FCA's wider regulatory rulebook. The FCA reminds regulated firms that Annex 1 firms are not authorised under the Financial Services and Markets Act 2000, meaning that the FCA's wider conduct rules do not apply to them and their customers do not have access to the UK Financial Ombudsman Service (FOS).

The FCA therefore expects regulated firms to carry out robust due diligence, in line with legislative requirements, to understand the firm's business. This includes seeking direct confirmation from the Annex 1 firm of its registration status, conducting independent checks of information provided by the Annex 1 firm, and understanding and managing any associated risks, including those identified in the 2025 National Risk Assessment. The FCA also notes that it is aware of some cases where consumers have been encouraged to set up limited companies to access lending, such as unregulated bridging finance, from Annex 1 firms. The FCA emphasises the importance of consumers being aware that FOS protections will not apply if issues arise in these cases.

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