The FCA highlights the due diligence risks for firms when dealing with unregulated lenders

TLT picks out the key points you shouldn’t miss...

What’s this about?

On 20 March 2026, the FCA published a statement reminding regulated firms of their obligation to undertake proper checks when dealing with unregulated lenders, safe custody providers, money brokers and financial leasing companies — also known as "Annex 1" firms.

The statement reflects the FCA’s growing concern about weak due diligence and risk management where regulated firms interact with Annex 1 businesses, and follows recent supervisory engagement in this area.

Our Head of Financial Crime, Ben Cooper says...

“This statement is a timely reminder that the Annex 1 regime is a registration, not an authorisation, regime, and carries materially fewer protections for consumers and counterparties.

Regulated firms that deal with Annex 1 businesses without robust due diligence expose themselves to significant regulatory and reputational risk. The FCA's direct engagement with 300 firms in late 2025 shows this is an area of active supervisory focus, and firms should treat this statement as a prompt to review their arrangements without delay.”

The points not to miss...

Annex 1 firms operate under a limited regulatory regime

There are approximately 1,200 firms registered with the FCA solely for anti-money laundering purposes. The FCA's powers in relation to these firms are limited to assessing their compliance with anti-money laundering obligations — the broader FCA rulebook, including conduct rules, does not apply to them.

No access to the Financial Ombudsman Service

Customers of Annex 1 firms are not able to access the Financial Ombudsman Service, meaning that if things go wrong, the usual consumer redress routes available under the FCA's authorisation regime are simply not available to them. This increases the risk of consumer harm and downstream complaints or reputational damage for regulated firms that introduce, refer or otherwise facilitate access to Annex 1 firms.

Regulated firms must carry out thorough due diligence

When dealing with Annex 1 firms, regulated firms must conduct due diligence to understand the firm's business in accordance with legislative requirements. This includes verifying registration status, independently checking information provided, and identifying and understanding and managing associated risks — including those detailed in the 2025 National Risk Assessment.

The FCA has already raised AML concerns and followed up with 300 firms

The FCA raised concerns about anti-money laundering standards directly with Annex 1 businesses via a dear CEO letter in 2024, and subsequently followed up with 300 firms in late 2025 as part of its continued proactive and reactive supervisory work in this area.

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Consumer harm risk from limited company structuring

The FCA is aware of cases where consumers have been encouraged to set up limited companies in order to access lending — such as unregulated bridging finance from Annex 1 firms. Consumers in these situations will not have access to the Financial Ombudsman Service if things go wrong, and it is important they are made aware of this before proceeding.

If you are a regulated firm that deals withAnnex 1 businesses – whether as a customer, introducer or service provider –you should review your due diligence arrangements and ensure that associatedrisks are clearly identified, documented and actively monitored.

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How TLT can help‍

We have extensive experience supporting Annex 1 firms with registration applications and ongoing AML compliance. We also regularly advise banks and other regulated firms on conducting proportionate, risk‑based due diligence on Annex 1 counterparties and responding to FCA supervisory scrutiny. If you would like to discuss your approach, please get in touch.

At a glance...

Publication link	FCA highlights risks when dealing with unregulated lenders
Published date	20 March 2026
Who has published it?	FCA
Publication type	Statement
Any key dates?	N/A
What's it relevant to?	Financial Crime, Fraud, Compliance, Anti-Money Laundering

Authors: Ben Cooper and Tamara Raoufi

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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