FCA curbs six unregulated lenders over AML controls

The Financial Conduct Authority has imposed restrictions on six unregulated lenders after raising concerns about their anti-money laundering controls while assessing their applications for registration, the regulator said on Friday, Oct. 23.

All six are so-called Annex 1 firms — unregulated lenders, safe custody providers, money brokers and financial leasing companies that must register with the FCA for anti-money laundering supervision. The restrictions limit the six firms' ability to take on new customers or do new business with existing ones, including extending credit. The FCA did not name the six, as reported by Alternative Credit Investor.

A private credit manager, fund or family office that funds alongside or through an unregulated lender now has one question before signing: is that counterparty one of the six? The question is whether the restriction touches the new facility. The FCA restricts new business, not the existing book, so the exposure sits in what comes next rather than in what has already closed.

In August the regulator said it had identified a number of risks among Annex 1 firms, in particular their potential to facilitate financial crime, and warned that applications for registration would face closer scrutiny and take longer. It also flagged risks to consumers and markets from unregulated lending conducted through complex structures, including special purpose vehicles, and criticised firms for leaning on their parent companies' financial crime controls rather than having their own.

The FCA is also assessing responses to an information request sent to around 900 registered Annex 1 firms, which it said would help it identify and disrupt financial crime risks. It also said the responses would help it decide where further action is needed. The six restrictions come from the registration pipeline; the 900-firm request is a broader supervisory sweep that could produce more.

Steve Smart, the FCA's executive director for fighting financial crime, said: "We have warned Annex 1 firms that they face increased scrutiny. They must demonstrate they can manage the money laundering risks they face. Where they cannot satisfy us, we will intervene."

Market Financial Solutions, the bridging lender, collapsed into administration in February amid allegations of financial irregularities and left creditors facing losses of at least £1.3bn. The FCA opened an enforcement investigation into the firm, itself an Annex 1 lender, in March.

Slower registration is a cost for unregulated lenders and for the credit funds that use them as originators: a firm waiting on registration cannot easily expand the lending it does.