Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

FCA Increases Scrutiny of Unregulated Lenders Over Financial Crime Risks

The Financial Conduct Authority (FCA) has announced tighter scrutiny of unregulated lenders, citing concerns about potential financial crime. The regulator is focusing on Annex 1 firms, which include money brokers and financial leasing companies, and is urging these firms to register for anti-money laundering (AML) purposes.

The FCA stated that any firms carrying out relevant activities without registration should submit an application. The regulator will closely scrutinise Annex 1 applications, which is expected to lengthen the registration process. Firms applying to register are reminded to demonstrate compliance with money laundering regulations.

The FCA expressed concerns that Annex 1 firms may facilitate financial crime and noted that some firms rely too heavily on the financial crime controls of their parent companies. The regulator emphasised that each firm must assess whether these controls are appropriate for their own risks, governance, and operations, and cannot rely on generic procedures designed for other companies. Controls must be tailored to each firm's specific operations and risks.

The FCA also highlighted risks to consumers and markets from unregulated lending conducted through complex structures, such as special purpose vehicles (SPVs). In March, the FCA issued a notice to regulated firms, reminding them to conduct due diligence when dealing with unregulated lenders and other Annex 1 firms, as FCA rules do not fully extend to these entities.

The regulator has sent an information request to around 900 Annex 1 firms to better understand their activities, business models, and risks. This follows previous contact with 300 firms at the end of last year, meaning all registered Annex 1 firms have now been contacted. The FCA stated it will use this information and other intelligence to identify and disrupt financial crime risks in the sector.

For UK letting agents and inventory clerks, these developments highlight the importance of verifying the registration status and AML compliance of any unregulated lenders or financial firms involved in property transactions.