Opening decision | Scenario assumption
"The lender is FCA registered"
A corporate customer is receiving £8.5 million from a short term property lender. The relationship manager supplies a screenshot showing the lender on the Financial Services Register and says no further work is needed because the lender is "FCA registered".
The screenshot does not identify the precise legal entity, the activity recorded, any permissions, or the source and purpose of the financing.
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Law and perimeter
What Annex 1 actually means
The Money Laundering Regulations 2017 bring certain financial activities into the anti-money laundering supervisory perimeter even where the person is not otherwise an FCA authorised person. Regulation 10 and Schedule 2 describe relevant financial activity. Regulation 55 gives the FCA power to maintain an Annex 1 register and defines an Annex 1 financial institution for that register.[3][4]
Where the FCA establishes the register, regulation 56 contains the operative requirement not to act unless the relevant person is included in the appropriate register, subject to its conditions. Regulation 57 governs applications, regulation 58 applies the fit and proper test to Annex 1 institutions, and regulation 59 sets out other refusal grounds.[4][5][6]
Broad activities can include lending, financial leasing, guarantees and commitments, certain payment or investment-related services, and safe custody. Scope depends on the precise activity, exclusions and surrounding facts. A list of labels is not a substitute for a perimeter analysis.[2][3]
A person already authorised under the Financial Services and Markets Act 2000 does not separately register as an Annex 1 financial institution. The FCA guidance also distinguishes an original lender from an SPV that only receives the legal or beneficial interest in loans.[2]
Decision component
The registration trap
FCA authorised
Tells you: the named firm has FCA permission for specified regulated activities, subject to the register entry.
Does not tell you: that every activity, affiliate, product or transaction is approved or low risk.
Registered for a purpose
Tells you: the named entity appears in a defined registration regime, such as Annex 1 AML supervision.
Does not tell you: that the FCA has approved its wider business model, financial soundness, conduct, products or customer protections.
Unregistered or unauthorised
Tells you: an independent status check has not confirmed the claimed status.
Does not tell you: that financial crime exists. Establish whether the activity requires authorisation, registration or neither.
Treat status as one verified attribute in an entity and transaction assessment. Record the legal entity, the relevant register language, the activity tested and any mismatch.
Registry halo
Risk: registration becomes blanket comfort. Signal: "FCA approved" replaces a permission check. Response: verify entity, entry, activity and transaction.
FCA intervention | 7 August 2026
What the FCA is worried about
The FCA said it was applying increased scrutiny to Annex 1 firms because it was concerned some may facilitate financial crime. It sent information requests to around 900 firms after contacting 300 firms in late 2025, meaning all registered Annex 1 firms had been contacted.[1]
Borrowed controls
Risk: group controls can mask a local gap. Signal: the firm supplies an off-the-shelf policy or relies on a parent without entity-specific evidence. Response: test implementation, ownership, risk assessment and monitoring in the registered entity.
Investigation workflow
Twelve checks before relying on the label
- Resolve the legal entity. Match legal name, company number, address and trading names.
- Define the claimed activity. Record what the entity says it does in this transaction.
- Verify exact FCA status. Search independently and read the entry, not merely the result heading.
- Test the perimeter. Determine whether that activity needs authorisation, Annex 1 registration or neither. Escalate legal uncertainty.
- Reject screenshot dependency. Capture a dated first-party result and retain the search path.
- Understand ownership and control. Resolve controllers, beneficial owners, directors and group relationships.
- Trace source and destination. Identify the origin, recipients, intermediaries and repayment path.
- Test commercial rationale. Compare amount, term, security, pricing and purpose with the parties' profile.
- Map connected entities and SPVs. Identify which entity originated, funded, assigned, serviced and received the loan.
- Review adverse information. Search official notices, insolvency records, litigation where relevant and credible adverse media.
- Reconcile the explanation. Compare the customer's description with the entity, activity and register evidence.
- Escalate contradictions. Pause reliance where identity, perimeter, control or funds-flow uncertainty remains.
Entity drift
Risk: one entity status is attributed to another. Signal: contract and payment names differ. Response: resolve each legal actor and role.
Practitioner matrix
Signal, limit, next check, escalation
| Scenario | What it means | What it does not mean | Verify next | Potential escalation |
|---|---|---|---|---|
| Authorised firm, expected activity | Named firm has relevant permissions on the checked entry. | The transaction or affiliate is automatically low risk. | Entity, permission, product, funds flow and rationale. | Permission mismatch or unexplained transaction. |
| Annex 1 firm, activity consistent | Named entity is registered for AML supervision and its stated activity appears aligned. | Wider FCA approval or customer protection. | Scope, ownership, controls and transaction. | Material facts do not match the entry. |
| Customer says "FCA approved" | The customer associates the firm with the FCA. | That the FCA approved its model, soundness, products or conduct. | Ask what status is meant; verify independently. | Persistent misrepresentation or concealment. |
| Claimed registration cannot be verified | The claim is unresolved or false. | Financial crime is established. | Names, number, trading style, recent status and activity. | No credible resolution before proceeding. |
| Relevant group entity unclear | Group branding is obscuring the legal actor. | One entity's status covers the group. | Contract, account, invoice, register entry and ownership map. | Counterparty or recipient cannot be resolved. |
| SPV provides or receives unexplained finance | An SPV is present in the financing path. | The SPV needs Annex 1 registration merely because loan interests were transferred. | Originator, assignment, funding source, servicing and beneficiaries. | No commercial rationale or opaque controllers. |
| Entity relies entirely on group controls | Controls may be centralised. | They are tailored, implemented or effective in that entity. | Entity risk assessment, accountability, testing and local operation. | No entity-specific ownership of AML risk. |
Worked scenario 2 | Scenario assumption
The group SPV hand-off
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The assessment reports criminal use of bridging loans and bridging-loan companies, and says speed and flexibility can create susceptibility to money laundering. It notes that many bridging lenders are Annex 1 supervised while some are FSMA regulated. This supports transaction-specific scrutiny, not a presumption against bridging lenders.[11]
SPV fog
Risk: assignment obscures origination. Signal: unexplained SPV payee. Response: map origination, control and funds flow.
Confirmed FCA case | 20 March 2026
Market Financial Solutions Limited
The FCA announced that it had opened an enforcement investigation into Market Financial Solutions Limited. It said the firm was registered under Annex 1 for money laundering supervision but was not authorised under the wider financial services regime, and that it entered administration on 25 February 2026.[10]
An investigation is not a finding of misconduct. No later FCA outcome was identified in the primary-source review completed on 26 August 2026. The case is used here only to illustrate why "registered with the FCA" must be unpacked.
The useful investigation lesson is structural: identify the exact perimeter status before deciding what assurance it provides. Do not generalise facts about one company to Annex 1 firms as a class.
Investigation aid
Practitioner checklist
- Exact legal entity and company number resolved
- Actual activity described in evidence, not labels
- FCA status and relevant entry independently checked
- Authorisation, registration or neither distinguished
- Ownership, control and group roles mapped
- Originator, SPV, servicer and payee identified
- Source, destination and repayment path understood
- Commercial rationale tested against the profile
- Official notices and adverse information reviewed
- Contradictions recorded and escalated before reliance
The presence of an FCA registration can be a useful data point. It is not a substitute for understanding what the entity is registered for, what activity it is actually conducting and whether that activity and the surrounding transaction make sense.
Risk, signal, response
Four patterns to retain
Registry halo
Risk: status becomes blanket comfort. Signal: "FCA approved" without a permission or purpose. Response: verify entity, entry, activity and transaction.
Borrowed controls
Risk: group policy masks entity gaps. Signal: no local risk assessment or owner. Response: test entity-specific implementation and accountability.
Entity drift
Risk: one group entity's status is attributed to another. Signal: branding, contract and payment names differ. Response: resolve every legal actor and role.
SPV fog
Risk: assignments obscure origination and funds flow. Signal: unexplained SPV payee or provider. Response: map origination, assignment, control, servicing and beneficiaries.
Evidence and methodology
Primary sources
Regulatory propositions were checked against current first-party pages or legislation on 26 August 2026. Law, FCA guidance, analytical recommendations and scenario assumptions are labelled separately. Links are provided for independent review.
- FCA, Applying increased scrutiny to Annex 1 firms, 7 August 2026.
- FCA, Money laundering and terrorist financing registration, current page updated 26 August 2026.
- Money Laundering Regulations 2017, regulation 10 and Schedule 2.
- Money Laundering Regulations 2017, regulation 55, FCA power and definition, regulation 56, operative registration requirement, and regulation 57, applications.
- Money Laundering Regulations 2017, regulation 58, fit and proper assessment.
- Money Laundering Regulations 2017, regulation 59, refusal of registration.
- FCA, Risks when regulated firms deal with unregulated lenders and other Annex 1 firms, 20 March 2026.
- FCA, How to check a firm or individual is authorised, authorised and registered distinction.
- FCA, Financial Services Register, scope and use of the official record.
- FCA, Investigation into Market Financial Solutions Limited, 20 March 2026.
- HM Treasury and Home Office, National Risk Assessment 2025, paragraph 3.97.
Knowledge check
Can you apply the distinction?
Frequently asked questions
Annex 1 due diligence questions
Is an Annex 1 firm authorised by the FCA?
Not by virtue of Annex 1 registration. It is registered for the relevant Money Laundering Regulations regime. Check whether the entity has any separate authorisation and the permissions attached to it.
Does registration prove the firm is legitimate?
No. It is a relevant verified data point and reflects entry into a supervisory regime, but it does not guarantee conduct, financial soundness, products or a transaction.
Does lack of FCA authorisation mean the activity is illegal?
No. First establish whether the actual activity requires authorisation, registration or neither. Obtain specialist perimeter advice where the position is unclear.
Can one group company's controls cover another?
Controls may be centralised, but investigators should establish entity-level accountability, risk assessment, implementation and testing rather than assume a group policy is effective everywhere.
Continue the investigation