FCA steps up dirty money and non-AML compliance scrutiny of Annexe 1 Firms (lenders, money brokers, factoring, etc.)  

The UK Financial Conduct Authority (FCA) has intensified its efforts to tackle illicit financial activity in the UK, extending its supervisory reach deeper into the activities of Annexe 1 firms—a diverse category that includes:

• Commercial lenders,
• Money brokers,
• Leasing companies,
• Invoice‑factoring providers and
• Safety‑deposit box operators.
• SEE APPENDIX BELOW FOR FULL LIST

These firms, although not subject to the FCA’s wider regulatory regime, must register with the Authority to demonstrate compliance with anti-money‑laundering (AML) and counter‑terrorist‑financing (CTF) rules.

Annexe 1 firms MUST comply with all UK AML laws and sanctions regulations.

• Annexe 1 firms must comply with the full scope of UK anti-money‑laundering (AML), counter‑terrorist‑financing (CTF) and sanctions obligations, even though they are not fully authorised or regulated by the FCA for other purposes.

1. Annexe 1 firms are directly subject to the UK Money Laundering Regulations (MLRs)

The FCA confirms that Annexe 1 firms must register with it specifically to ensure compliance with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs).

• Annexe 1 firms “undertake specified activities which mean they must be registered and supervised by [the FCA] for their compliance with the Money Laundering… Regulations 2017.”
• [fca.org.uk]
• The MLRs impose full AML and CTF obligations, including risk assessments, customer due diligence, ongoing monitoring, and reporting suspicious activity.

2. Annexe 1 firms must follow all AML controls expected of regulated firms

The FCA’s recent reviews found Annexe 1 firms failing to meet core AML requirements, such as:

• Proper RISK‑ASSESSMENT OF CUSTOMERS and their own business activities
• Maintaining adequate financial crime controls
• Ensuring effective oversight, staffing, and training
• [fca.org.uk]

These expectations arise because they fall within the scope of AML law, regardless of whether the firm is authorised under FSMA.

3. Sanctions compliance is mandatory for all UK businesses – including Annexe 1 firms

Although the FCA supervises Annexe 1 firms for AML/CTF under the MLRs, sanctions compliance is a separate legal obligation that applies to every UK entity, not just regulated firms.

Even though this is not stated explicitly in the search results (the FCA guidance focuses on AML obligations), under UK law:

• All companies must comply with UK financial sanctions, enforced by OFSI (HM Treasury).
• AML/CTF obligations under the MLRs require firms to have systems that detect and prevent breaches of sanctions—meaning sanctions compliance is inseparable from AML duties.

Therefore, because Annexe 1 firms are within the scope of the MLRs, their AML systems must incorporate sanctions screening, controls, and escalation procedures.

4. FCA statements reinforce that Annexe 1 firms must meet the same AML + sanctions standards as other supervised firms

• The FCA emphasises that Annexe 1 firms “need to pay close attention to the obligations set out in the MLRs and associated industry guidance” and maintain financial crime systems “fit for purpose.” [dwfgroup.com]
• These systems include sanctions compliance as part of ongoing monitoring, customer risk assessment, and due diligence—core requirements under the MLRs.
• The FCA warns firms that inadequate AML controls (which necessarily include sanctions controls) may lead to regulatory action or enforcement. [fca.org.uk]

Conclusion: Full AML + Sanctions Compliance Is Required = Annexe 1 firms MUST comply with:

• All AML obligations under the MLRs, including
• Governance, audit, training, documentation
• RISK ASSESSMENTS
• Customer due diligence
• Enhanced due diligence
• Ongoing monitoring
• Transaction monitoring
• SAR reporting
• All UK financial sanctions laws
• Even though OFSI formally enforces sanctions rather than the FCA, firms supervised under the MLRs must implement sanctions controls as part of their AML framework.
• FCA oversight and supervision
• Even though they are not “authorised” firms, Annexe 1 businesses are subject to FCA AML supervision and can face enforcement action for failures.

Survey Sent to 300 Firms as Part of Ongoing Probe

• According to the reported information shared, FCA sent a detailed survey to roughly 300 Annexe 1 firms during the final quarter of last year.
• The exercise, understood to be part of a wider data-driven probe, sought to assess how these firms had conducted gap analyses following previous FCA AML reviews. This marks another step in the regulator’s sustained campaign to clamp down on weak financial crime systems across UK financial intermediaries.
• While the FCA has not publicly commented on this specific survey, recent communications from the regulator indicate an intensifying focus on the sector.
• This follows a  “Dear CEO” letter published on 5 March 2024 that highlighted widespread failings in the financial crime controls of Annexe 1 firms, ranging from poor customer risk assessments to under-resourced AML teams.
• https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-action-response-common-control-failings-anti-money-laundering-frameworks.pdf

Annex 1 Firms Under Heightened FCA Supervision

• Annexe 1 firms conduct specified financial activities under the Money Laundering Regulations 2017, meaning they must register with the FCA even though they do not fall under its broader conduct or prudential framework.
• The regulator has warned repeatedly that too many of these firms “are still not getting the basics right” when it comes to preventing financial crime. Its latest assessments found:
• • Discrepancies between firms’ registered and actual activities.  
  • Financial crime controls that have not kept pace with business growth.  
  • Inadequate risk assessments, both business-wide and customer-specific.  
  • Insufficient detail in due‑diligence policies, creating ambiguity for staff.  
  • Poor governance, including weak senior‑management oversight and limited training.
  • [pwc.co.uk]

The FCA has been clear that such weaknesses expose the UK financial system to significant risks, particularly in areas where firms lack full regulatory oversight.

FCA Signals Potential Enforcement Action

• The regulator has warned that any Annexe 1 firm that fails to address identified deficiencies may face enforcement action, including formal sanctions. In its 2024 communications, the FCA stated that all such firms must reassess their financial crime controls within six months, apply corrective measures, and ensure their frameworks remain proportionate to the scale and complexity of their operations.
• [eversheds-…erland.com]
• In a statement accompanying the March 2024 Dear CEO letter, FCA Director Emad Aladhal stressed that poor controls “make it easier for criminals to abuse the financial system and damage the integrity of UK markets.” He added that despite progress elsewhere, Annexe 1 firms remain a weak link in the fight against financial crime.

A Data-Led Approach to AML Supervision

• The recent survey of 300 firms appears consistent with the FCA’s increasingly data-led strategy for supervising non-authorised entities. Leveraging surveys, desk-based reviews, and targeted visits, the Authority is building detailed risk profiles of firms that historically operated with relatively light regulatory oversight.
• This follows a pattern highlighted in supervisory updates throughout 2024, including written warnings issued to Annexe 1 CEOs when firms were found to have AML deficiencies or inaccurate business registrations.
• [compliance…illkie.com]

City Firms Face a New Compliance Reality

• For commercial lenders, money brokers and other Annexe 1 businesses, the message is clear: the FCA expects the same rigour it demands of fully regulated financial institutions.
• Gaps in documentation, outdated controls or under-resourced compliance teams are no longer tolerable.
• Industry advisors note that the intensified scrutiny reflects the FCA’s wider three-year strategy to reduce financial crime. Analysts also note that Annexe 1 firms often operate at the edges of traditional financial regulation, making them attractive targets for criminals seeking to move illicit funds through lightly supervised channels.

What Comes Next

• As the FCA continues its crackdown, firms can expect further surveys, thematic reviews and possibly more public communications in the months ahead. The regulator’s recent actions suggest a willingness to use its enforcement powers more aggressively if firms fail to act.
• With the UK positioning itself as a leading global financial centre, the FCA appears determined to close loopholes in the system—starting with the sectors most vulnerable to exploitation.

APPENDIX

Below is a detailed, authoritative list of FCA Annexe 1 firm types, based entirely on the FCA’s official “Money Laundering Registration” guidance, which defines which businesses must register as Annexe 1 financial institutions for AML/CTF supervision.

The FCA does not publish a list of individual firms, but it does publish the full list of business activities that classify an entity as an Annexe 1 firm. These categories are reproduced in detail below.

Detailed List of FCA Annexe 1 Firm Types

All of the following business activities require registration with the FCA as an Annexe 1 financial institution if carried out “by way of business” in the UK.

1. Lending Activities

These include a broad set of credit-related services:

• Consumer credit (unless already FCA‑authorised for consumer credit)
• Credit agreements secured on immovable property (mortgage-type loans)
• Factoring — with or without recourse
• Financing commercial transactions (including forfeiting)

Examples of firms in this category:Commercial lenders, invoice factoring companies, forfaiting specialists, and commercial finance providers.

2. Financial Leasing

• Financial leasing (not operational leasing, consumer hire, or hire‑purchase)
• Applies to firms providing capital‑leasing products to businesses or consumers.

Examples:Asset‑finance leasing providers, equipment finance companies.

3. Providing Payment Services

• Non-bank payment service providers (PSPs) conducting Annexe 1‑defined payment services.(Note: Fully authorised payment institutions are outside Annexe 1.)

Examples:Stand-alone PSPs, small operators providing payment initiation or fund transfer services.

4. Issuing and Managing Payment Methods

• Issuing or managing alternative or specialised payment instruments.

Examples:Prepaid card issuers, voucher-based payment providers.

5. Guarantees and Commitments

• Offering guarantees or financial commitments as part of a business offering.

Examples:Trade‑finance guarantees, surety/guarantee providers linked to lending arrangements.

6. Trading for Own Account or for Customers

This covers certain trading activities in financial markets:

• Money market instruments
• Foreign exchange (FX) trading
• Financial futures and options
• Exchange‑ and interest‑rate instruments  
• Transferable securities

Examples:Proprietary trading firms, FX brokers, commodity derivatives traders.

7. Safe Custody Services

• Operation of safe deposit boxes
• Other safe‑custody‑type services where client's valuables are held securely [

Examples:Safe deposit box providers offer secure storage facilities for valuables.

8. Money Broking

• Intermediation in money markets or financial instruments on behalf of clients.  

Examples:Money brokers, interdealer brokers.

9. Portfolio Management Advice

• Providing advice on portfolio composition (not the activity of managing portfolios itself).

Examples:Advisory‑only investment consultancies (not authorised under FSMA).

10. Safekeeping and Administration of Securities

• Non-custody investment firms that hold or administer securities as a business.

Examples:Registrar services, administrative custodians.

11. Participation in Securities Issuance and Related Services

• Taking part in issuing securities
• Providing services relating to securities issuance (including registrars)

Examples:Corporate finance advisers involved in new issues and registrar-related service firms.

12. Advisory Services to Undertakings

• Advice to businesses on:
• Capital structure
• Industrial strategy
• Mergers, acquisitions, disposals

Examples:M&A advisors, corporate restructuring advisers.

13. Issuing Electronic Money

• Issuers of e-money who are not authorised as electronic money institutions (EMIs).

Examples:Small e-money operators, prepaid token issuers.

Important Clarifications

1. Annex 1 = Registration, Not Authorisation
1. Annexe 1 firms are not FCA‑authorised but must register for AML/CTF supervision under the Money Laundering Regulations.
2.  No Public List of All Firms
1. The FCA keeps a public register of firms that have registered, but it does not publish a compiled “list of all Annexe 1 firms” as a standalone document.Instead, firms appear individually in the FCA Register.
3. Activities Determine Status
1. If a business performs any of the Annexe 1 activities by way of business in the UK, it must register—even if this represents only a small part of its activities.

Sources

https://www.fca.org.uk/firms/money-laundering-terrorist-financing/registration

https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.fca.org.uk%2Fpublication%2Fforms%2Fregistration-annex-i-notes.doc&wdOrigin=BROWSELINK