FCA Increases Scrutiny of Annex 1 Firms

The statement highlighted concerns around financial crime risks and whether firms have appropriate, entity-specific AML controls.

Key points included:

➡️ Increased Registration Scrutiny: The FCA is closely scrutinising Annex 1 registration applications, with firms expected to clearly demonstrate compliance with the Money Laundering Regulations;

➡️ Reliance on Group Controls: The FCA sees firms relying too heavily on parent company financial crime controls and expects each entity to assess whether controls are appropriate for its own risks, governance and operations;

➡️ Tailored Procedures: Firms cannot rely on off-the-shelf procedures designed for another company and must tailor controls to how they operate and the risks they need to manage;

➡️ Unregulated Lending: The FCA highlighted risks associated with unregulated lending through complex structures, including special purpose vehicles (SPVs); and

➡️ Sector-Wide Information Gathering: The FCA sent information requests to around 900 Annex 1 firms and will use the information gathered alongside other intelligence to identify and disrupt financial crime risks.

Key considerations for firms:

✅ Not registered? Apply now: Firms conducting relevant Annex 1 activities without registration should submit an application and prepare for more heavily scrutinised applications;

✅ Group controls aren't enough: Firms should be able to evidence how group-level policies and controls have been adapted to their own business model, financial crime risks, governance and operations;

✅ Expect more due diligence from counterparties: Regulated firms are expected to conduct due diligence on Annex 1 counterparties, including seeking direct confirmation of their registration status; and

✅ Complex structures are a named risk area: Firms using structures such as SPVs should expect additional attention and be able to demonstrate that the associated financial crime risks are understood and appropriately controlled.

 💡 With the FCA increasing its scrutiny of Annex 1 firms, Plenitude’s Advisory and Transformation services supports firms in assessing and strengthening their AML frameworks, including entity-specific risk assessments, governance arrangements and controls, and ensuring group frameworks are appropriately tailored to their business model and risk exposure. We also support firms preparing for registration, responding to FCA information requests and addressing identified control gaps. Visit our website for more information: Advisory and Transformation | Plenitude Consulting