FCA Increases Scrutiny of Annex 1 Firms Over Financial Crime Risks

Key Points:

• The FCA is closely scrutinizing Annex 1 registration applications and expects firms to demonstrate compliance with UK money laundering regulations.
• Around 900 registered Annex 1 firms have received information requests covering their activities, business models, and financial crime risks.
• Firms cannot rely solely on parent-company controls or generic group procedures; controls must reflect their own risks, governance, and operations.
• The FCA warned regulated firms to conduct due diligence on Annex 1 counterparties and verify their registration status directly.

FCA tightens oversight of Annex 1 firms

The FCA said it has identified financial crime concerns across Annex 1 firms, which must register with the regulator for anti-money laundering purposes. Firms conducting covered activities without registration are expected to apply.

The regulator highlighted concerns about firms relying excessively on their parent company’s financial crime controls. Each entity must independently assess whether group controls adequately address its own risk profile and cannot simply adopt procedures designed for another business.

The FCA also flagged risks associated with unregulated lending conducted through complex structures, including special purpose vehicles. Regulated firms dealing with Annex 1 entities should therefore understand their counterparties’ business models and verify registration directly.

As part of its response, the FCA is applying increased scrutiny to registration applications and warned that applications may take longer to process. Firms must demonstrate that they can meet applicable money laundering requirements.

The regulator has also sent information requests to approximately 900 Annex 1 firms, following earlier engagement with 300 firms in late 2025. This means the FCA has now contacted all registered Annex 1 firms.

The FCA said it will use information from these exercises, alongside other intelligence, to identify and disrupt financial crime risks across the sector.