FCA Calls on Annex 1 Firms to Improve Anti-money Laundering Compliance

March 5, 2024

Financial Conduct Authority, the financial regulatory body in the United Kingdom, warns firms of the failures observed in financial crime controls. FCA has briefed to CEOs of Annex 1 on its recent findings on how firms are failing to comply with money laundering standards.

Annex 1 businesses, including some lenders, safe custody providers, money brokers, and financial leasing companies, are engaged in specific activities that mandate FCA’s registration and supervision to ensure compliance with Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017.

FCA has written letters to CEOs of Annex 1 Firms urging them to overcome their AML failures.  Within the next six months, all Annex 1 firms are expected to evaluate financial crime controls based on the vulnerabilities identified. In instances, where the firms fail to meet the standards, they must take immediate actions to address them.

FCA notifies firms to respond adequately to the letter, otherwise, they could face serious consequences possibly including enforcement action.

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Talking about the need to strengthen financial crime controls, Emad Aladhal, head of Client Assets and Resolution Department (CARD) at the FCA, reportedly stated,

“Poor financial crime controls make it easier for criminals to abuse the financial system and damage the integrity of UK markets.”

He further stated,

“We have made fighting financial crime a priority and though we’ve seen progress generally amongst the firms we supervise, this report highlights some basic failures amongst Annex 1 firms which are not subject to our full regulatory regime. These must be addressed.”

Key Concerns

FCA highlights some issues found in the assessment of firms including;

  • Discrepancies between the stated activities of the firms and their actual activities
  • Financial crime controls lagging behind the rapid growth of businesses
  • Inadequate risk assessment concerning their own or client’s activities
  • Improper due diligence Checks and ongoing monitoring of clients
  • Lack of sufficient resourcing and supervision related to addressing financial crimes

There are around 1,000 firms registered under Annex 1 that operate without authorization and aren’t subject to FCA regulation. As per the initial findings from the data-driven review of a particular set of Annex 1 firms, FCA reveals that certain entities are still struggling with fundamental aspects.

Lack of adequate and irregular due diligence checks may create opportunities for criminals or corrupt professionals to bypass AML laws and pose a risk to financial integrity. Firms are required to have proper policies and procedures in place to effectively address financial crimes like money laundering & terrorist financing.

Leveraging its resources and expertise, the UK is actively taking proactive steps to address financial crimes and preserve financial integrity.

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