This article is part of the Autumn 2026 edition of Financial regulation quarterly, which covers practical insight on the regulatory developments in the sector.

Firms registered with the Financial Conduct Authority (FCA) for anti-money laundering (AML) supervision have, until recently, attracted limited attention. That is changing. On 7 August 2026, the FCA published a statement outlining concerns about unregulated lenders, safe custody providers, money brokers and financial leasing companies which are required to be registered with the FCA for anti-money laundering AML supervision – known collectively as Annex 1 firms.  

This represents the latest in an escalation of interventions stretching back to early 2024 and follows the high-profile collapse of a major Annex 1 lender, Market Financial Solutions (MFS), earlier this year. For firms operating in or alongside the sector, the implications are immediate and practical.

A question of scope

Registration requirements catch more firms than many realise. Businesses carrying out Annex 1 activities, even on a limited or ancillary basis, may be subject to registration obligations they are wholly unaware of. This is a particular issue in the B2B market, where a lack of awareness has led many to believe lending to businesses rather than consumers takes a firm outside the requirements. It does not. The obligation turns on the activity carried on, not the nature of the borrower; and Annex 1 firms operating without registration are committing a criminal offence.

Being registered with the FCA is not the same as being authorised under the Financial Services and Markets Act 2000 (FSMA). Annex 1 firms sit outside the FCA's full conduct and prudential rulebook. Their customers don’t have access to the Financial Ombudsman Service (FOS). The FCA has unease about consumers incorporating limited companies to access unregulated Annex 1 lending (such as bridging finance) without realising that FOS protections won’t apply if problems arise. It is precisely this gap - between the reach of anti-money laundering registration and the full suite of FCA-authorised obligations - that sits at the centre of the regulator's concerns.

What the FCA has found

In March 2024, following a thematic review, the FCA wrote to the CEOs of all Annex 1 firms, identifying common failings. Those included financial crime controls that hadn’t kept pace with business growth, business-wide risk assessments that were, in some cases, completely absent, discrepancies between registered and actual activities and inadequate resourcing. CEOs were asked to assess their own controls against those findings within six months. The August 2026 statement represents the regulator's assessment that sufficient progress hasn’t been made.

A recurring weakness is that firms are relying too heavily on the financial crime controls of their parent. Each individual firm within a group must assess whether those controls are appropriate for its own financial crime risks, governance and operations, and each firm must have controls tailored to the way it operates and the risks it needs to manage. For a niche money broker or a non-bank lending vehicle established within a broader group structure, generic group-level policies are unlikely to suffice.

The FCA is also concerned about the risks to consumers and markets from unregulated lending, often conducted through complex structures, including special purpose vehicles (SPVs). Such structures can obscure the true nature of lending activity and make financial crime risk considerably harder to identify, monitor and control.

The FCA continues to highlight the risks to regulated firms doing business with Annex 1 firms. This was first flagged in a separate FCA statement published on 20 March 2026 - the same day the FCA opened an investigation into MFS, an Annex 1 bridging lender that collapsed with a loan book reported to be more than £2bn. Regulated firms should continue to undertake due diligence and understand the business of firms they are dealing with - including seeking direct confirmation of Annex 1 registration status. An FCA registration mark does not confer the same level of oversight as full authorisation, and the FCA has made clear that regulated firms bear responsibility for understanding that distinction.

Closer scrutiny and slower applications

The FCA has updated its registration guidance to reflect this position. As the scrutiny applied to unregulated Annex 1 lending firms seeking registration increases, firms should expect it to take longer than usual for their applications to be determined. Applicants can help the FCA by ensuring their applications demonstrate how they will meet the requirements of an Annex 1 firm, prioritising robust AML compliance processes. 

The FCA has also set out common grounds for outright rejection. Missing or incomplete information on the form will result in rejection. An MLR Individual form for each senior person responsible for conducting Annex 1 activities is critically important to the FCA's assessment of the fitness and propriety of that individual. Standard DBS checks must be carried out for all MLR Individuals and beneficial owners who are not currently approved as Senior Management Functions (SMF) managers, and evidence of those checks must be readily available upon request. 

The scale of the exercise

The strongest signal of the FCA's intent is the breadth of its information-gathering exercise. An information request was sent to around 900 Annex 1 firms in the summer to improve the FCA’s understanding of their activities, business models and risks. This campaign follows the FCA’s contact with 300 Annex 1 firms in late 2025. The FCA will use the information gathered with other intelligence to identify and disrupt financial crime risks in the sector.  

Every firm in this space has been, or is expected to be, in direct dialogue with the regulator about the substance of its business. An information request from the FCA is not routine correspondence. Firms should respond with the same rigour and urgency as they would to any formal supervisory engagement.

What firms should do now

1. Revisit your registration position: Many lenders in the corporate space don’t realise they need to be registered. A firm carrying on lending that is not otherwise FCA-authorised will usually need to be on the Annex 1 register. Firms that operate without registration are committing a criminal offence and risk losing access to banking facilities as a direct consequence.
2. Audit your AML framework now: Assess whether your financial crime controls are genuinely tailored to your own business model and risk profile, or whether they have been carried across from a template without proper adaptation. The FCA has been explicit that the latter is insufficient.
3. Don’t assume group-level controls are enough: Each individual firm within a group must assess whether its controls are appropriate for its own financial crime risks, governance and operations.  Senior management should be able to demonstrate, supported by evidence, how the assessment was conducted and what it concluded.
4. If you're mid-application, prioritise accuracy and completeness: Every required form, every DBS check, every fee - get it right before submitting. Build longer timelines into your commercial planning. The statutory 45-day decision period is regularly exceeded in practice, and the FCA has been explicit that future applications will face heightened scrutiny.
5. If you're a regulated firm transacting with Annex 1 entities, review your due diligence: Regulated firms should understand the business of firms they are dealing with, including seeking confirmation of their registration status.  Counterparty due diligence processes should be reviewed and, where necessary, enhanced to reflect the specific risks this category of firm presents.
6. Respond carefully to information requests: If you receive one of the FCA's sector-wide information requests, treat your response as a regulatory submission. The FCA has said it will use the intelligence gathered to identify and disrupt financial crime risk.  The quality of your response will inform how it views your firm.

The combination of a sector-wide information sweep, materially heightened application scrutiny, and a clear public statement of concern about financial crime risk represents a sustained and deliberate supervisory focus on this part of the market. Firms that take a proactive approach - strengthening frameworks, investing in compliance resource, and engaging thoughtfully with FCA enquiries - will be considerably better placed than those who wait to be asked.

Browne Jacobson’s financial regulation team is available to support and advise on matters related to the FCA’s expanded role with Annex 1 firms.