UK FCA to apply increased scrutiny to Annex 1 firms

The UK Financial Conduct Authority (FCA) has published a statement announcing that it is applying increased scrutiny to Annex 1 firms. Annex 1 firms include unregulated lenders, safe custody providers, money brokers and financial leasing companies. This is following concerns about a number of risks the FCA has identified in the sector, particularly the potential for Annex 1 firms to facilitate financial crime. The FCA notes that some firms rely too heavily on the financial crime controls of their parent company, which are not tailored to their own firms' risks, governance and operations, and that firms cannot rely on off-the-shelf procedures designed for a different company. The FCA also highlights risks to consumers and markets arising from unregulated lending conducted through complex structures, including special purpose vehicles. In response, the FCA states that it is closely scrutinising applications to register as an Annex 1 firm. In addition, firms need to clearly demonstrate their ability to comply with the Money Laundering Regulations, with registration applications likely to take longer than usual. The FCA has also sent information requests to around 900 Annex 1 firms to improve its understanding of their activities, business models and risks. The FCA will then use this information, together with other intelligence, to identify and disrupt financial crime risks in the sector.

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