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Money Laundering Registration: FCA Annex 1 firms come under the spotlight.

08 March 2024
With the FCA taking an enhanced approach towards financial crime prevention and firm's systems & controls in this area, the focus is turning on Annex 1 firms. So, now is the time to ask yourself whether your firm is able to meet the FCA more targeted, intrusive, and assertive supervision of Annex 1 firms.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs): The MLRs make the FCA responsible for supervising the anti-money laundering controls of firms that offer certain services. In light of this, Annex 1 firms need to play close attention to the obligations set out in the MLRs and associated industry guidance as a good steer, to ensure that the firm's financial crime prevention systems and controls are fit for purpose. On 5 March 2024, a Dear CEO letter was issued to Annex 1 firms, which we will report on in our next article. 

Registration may be required: The FCA is very clear about the services which require registration as an Annex 1 Financial Institution. These services include for example: certain types of lending, financial leasing, providing payment services and portfolio management advice. Further information on the services can be found here. Equally, those that are already registered should ensure in the event of a change or the need to de-register, this is done without any delay.

Where you stand as an SPV: Where SPVs are involved in lending 'where they are the original lender', SPVs will also need to register as an Annex 1 financial institution. Further information on the SPVs can be found here.

The FCAs stance: In the recent FCA publication on 'Reducing and preventing financial crime (click here for further information), the FCA continue to maintain a robust and proportionate approach to authorisation. In light of this, 40% of Annex 1 applications were, 'rejected, withdrawn or refused'. Moreover, there is recent examples of two FCA 'Notice of Decision to Cancel' which were due to the firms not paying their fees. Click here and here.

This appears to align with what we are currently seeing in the market, with the FCA tighten the expectations on Annex 1 firms, through more targeted and intrusive supervision. This is coming through in the form of short-notice visits, information requests and Skilled Person reviews.

How our Regulatory Consulting Team can help: We have supported a number of Annex 1 firms with their FCA registration. Moreover, we have supported Annex 1 firms with ensuring the financial crime prevention systems and controls are fit for purpose, compliant with the MLRs and have taken into consideration industry guidance.  We are also performing Skilled Person work in this area.

Our Financial Crime Compliance team collectively have decades of relevant knowledge and experience of financial crime prevention and the MLRs. Our team of specialists have experience as Regulators, MLRO’s, Heads of Compliance and Heads of Risk, as well as experienced Consultants. We also have a wider Economic Crime & Fraud offering comprised of a range of legal experts with experience of relevant complex economic and financial crime prevention and defence experience. With the teams complementary blend of experience, we are well positioned to meet our clients' financial crime compliance needs in a manner which is proportionate and bespoke to your business. 

We have a vast amount of experience in supporting firms interpret and practically apply the obligations set out in the MLRs and Industry Guidance. We acknowledge this can be both complex and time-consuming for firms, so with our support, we can make this a seamless process by providing technically sound and practical solutions in a time and cost effective manner – or indeed by applying pragmatism through our Skilled Person work.  

Recent FCA publications have made it clear that there will be a shift in the supervisory approach. With this in mind our services can ensure that you stay on top of your obligations and don’t become subject to regulatory action. Please get in touch to discuss your needs in more detail. 

Further Reading