‘Annex 1’ firms handed six-month deadline to review AML controls

The FCA has written to CEOs of around 1000 firms asking them to assess financial crime controls and threatening possible enforcement for any shortcomings. The letter outlines findings from a recent analysis of Annex 1 firms – those registered with FCA for money laundering compliance but not otherwise subject to FCA regulation.

If your firm is on the receiving end of the letter, you should conduct a thorough gap analysis against its contents as soon as possible. And for anyone with a role in preventing money laundering the findings give useful further insight into the regulator’s financial crime strategy.

Annex 1 businesses, which include some lenders, safe custody providers, money brokers and financial leasing companies, are registered for compliance with money laundering regulations but not otherwise authorised or regulated by the FCA.

There are around 1000 of these firms, who will have received a ‘Dear CEO’ letter on 5th March. In it, the regulator outlines its process for assessing compliance at these firms – using what it describes as a ‘data-led’ approach to identifying firms for review and then taking supervisory action based on those reviews.

The letter outlines common issues it found in recent reviews, including:

  • Discrepancies between firms’ registered and actual activities.
  •  Financial crime controls which had not kept pace with business growth.
  • A failure to risk assess their own or their customers’ activities properly.
  • Inadequate resourcing and oversight of financial crime issues and requirements.

The control failings are discussed in more detail in the appendix which the FCA says should provide a basis for firms to review controls alongside other guidance.

The failings listed also contain useful pointers for firms to address. These include the FCA’s expectations, for example, when it comes to what is included in business-wide risk assessments and Customer risk assessments (BWRAs and CRAs).

For any firm creating a gap analysis of their financial crime controls for the first time this latest letter is a useful starting point. It also serves as a useful reference for anyone looking to conduct a review of their AML framework against evolving FCA expectations.

For those on the receiving end of the letter clear senior management accountability, and evidence that gaps have been identified and addressed before 6 month deadline in September are key.

We can help

Our financial crime team help firms building control frameworks which identify and prevent financial crime risks and meet regulatory expectations. We can help you assess your money laundering controls against the FCA’s expectations and address any issues you find before the six-month deadline.