AML for Annex 1 Registered Firms

Introduction

Anti money laundering (AML) compliance in the UK is overseen by appointed supervisory authorities. AML for Annex 1 registered firms has recently come under scrutiny by the FCA after their assessment into money laundering prevention processes. The regulator found cases of discrepancies between the registered and actual activities carried out by firms. In addition, they reported failures in client risk assessments and inadequate resources and oversight.

This article takes a look at who Annex 1 firms are, what AML framework they should have in place and the common areas of non-compliance with the Money Laundering Regulations (MLR).

AML Supervisory Authority

Any business with obligations under the Money Laundering Regulations (MLR) will have a supervisory authority to whom they must report. In many cases, this will be either the Financial Conduct Authority or HM Revenue & Customs (HMRC).

Each authority is responsible for governance and oversight of the firms’ anti-money laundering policies and controls. Their regulatory role includes setting out their own rules and guidance in addition to those already laid out in the MLR.

FCA Annex 1 Registered Firms

Annex 1 firms are those who must register with the Financial Conduct Authority (FCA) for compliance with the MLR. They are not however authorised or regulated by the FCA for any other services or activites that they provide. Such firms include certain lenders, money brokers and financial leasing businesses. There are approximately 1,000 Annex 1 firms registered with the FCA for money laundering compliance and oversight. Visit the FCA’s Money Laundering Registration page to see a full list of the activities and services that require money laundering supervision.

Analysis of Annex 1 Firms

On the 5th of March 2024, the FCA sent a letter to all Annex 1 firms. The letter contained information about the regulators recent MLR compliance assessments and warned firms about common failings found in financial crime policies, controls and activities. As part of their supervisory role, the FCA analysed financial crime policies, controls and procedures belonging to Annex 1 firms, using a “dataled approach to identify the firms that [were] selected for review”.

AML Compliance Assessment Findings

The assessment carried out on Annex 1 firms AML controls identified key areas where improvement was needed. Firms are now required to carry out their own AML risk assessments and AML gap analysis checklists to identify vulnerabilities. We have summarised the FCA’s main findings below. However, if you are an Annex 1 firm, you should review the CEO letter for the full findings and expectations.

• Discrepancies between firms’ registered and actual activities.
• Lack of financial crime controls to keep pace with business growth.
• Weaknesses in business wide risk assessments.
• Weaknesses in customer risk assessments.
• Lack of detail in policies creating ambiguity around actions staff should take to comply with their obligations under the MLRs.
• Lack of resources for financial crime
• Inadequate financial crime training
• Absence of a clear audit trail for financial crime related decision-making

AML Compliance – Next Steps

The FCA have given all Annex 1 firms 6 months from the date of the warning letter to assess their AML policies and controls for vulnerabilities and weaknesses. This means that firms have until September 2024 to assess their anti money laundering compliance framework, identify shortcomings and areas of non-compliance and take action to resolve any issues.

The letter sent by the regulator has made it clear that firms who do not take reasonable steps and measures to assess, identify and resolve failings “could face regulatory action, including possible enforcement action”.

AML Templates, Policies & Training Packages

Do you need an AML audit checklist to assist in reviewing your Annex 1 firm money laundering obligations? Looking for cost effective AML staff training programs that you can deliver yourself? Have you completed a compliance AML business wide risk assessment lately?

If the answer to any or all of the the above is yes, Know Your Compliance Limited have you covered. We are one of the UK’s leadings providers of AML policy templates, training packages and document toolkits. Join 10,000+ firms already using our packages and ensure you meet and exceed the FCA’s expectations when it comes to AML compliance!