FCA Reminds Firms of Risks with Unregulated Lenders
Summary
The UK Financial Conduct Authority (FCA) has published a statement reminding regulated firms of the risks when dealing with unregulated lenders and 'Annex 1' firms. Annex 1 firms are registered with the FCA solely for anti-money laundering (AML) purposes and are not subject to the FCA's wider regulatory rulebook. The FCA expects regulated firms to conduct robust due diligence, including direct confirmation of Annex 1 registration status and independent verification of information.
What changed
The FCA issued a statement on April 2, 2026, highlighting risks when regulated firms deal with unregulated lenders and 'Annex 1' firms. These firms are registered with the FCA only for AML purposes under the Money Laundering Regulations and are not authorised under the Financial Services and Markets Act 2000, meaning FCA conduct rules and Financial Ombudsman Service protections do not apply to them. The FCA references the 2025 National Risk Assessment and notes concerns about consumers being encouraged to set up limited companies to access unregulated bridging finance.
Regulated firms should review their due diligence procedures when dealing with Annex 1 firms. Required steps include seeking direct confirmation of the firm's Annex 1 registration status, conducting independent verification of information provided, and understanding and managing associated risks. Regulated firms should also ensure consumers are aware that FOS protections will not apply if issues arise with lending from Annex 1 firms.
What to do next
- Review and enhance AML due diligence procedures for dealing with Annex 1 firms
- Obtain direct confirmation from Annex 1 firms of their registration status and conduct independent verification
- Ensure consumers understand that Financial Ombudsman Service protections do not apply to transactions with Annex 1 firms
Archived snapshot
Apr 2, 2026GovPing captured this document from the original source. If the source has since changed or been removed, this is the text as it existed at that time.
April 2, 2026
UK FCA Statement Highlights Risks When Dealing With Unregulated Lenders
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The UK Financial Conduct Authority (FCA) has published a statement reminding regulated firms of the risks when dealing with unregulated lenders and other "Annex 1" firms. Annex 1 firms are registered with the FCA solely for anti‑money laundering (AML) purposes and are not subject to the FCA's wider regulatory rulebook. The FCA reminds regulated firms that Annex 1 firms are not authorised under the Financial Services and Markets Act 2000, meaning that the FCA's wider conduct rules do not apply to them and their customers do not have access to the UK Financial Ombudsman Service (FOS).
The FCA therefore expects regulated firms to carry out robust due diligence, in line with legislative requirements, to understand the firm's business. This includes seeking direct confirmation from the Annex 1 firm of its registration status, conducting independent checks of information provided by the Annex 1 firm, and understanding and managing any associated risks, including those identified in the 2025 National Risk Assessment. The FCA also notes that it is aware of some cases where consumers have been encouraged to set up limited companies to access lending, such as unregulated bridging finance, from Annex 1 firms. The FCA emphasises the importance of consumers being aware that FOS protections will not apply if issues arise in these cases.
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