Annex 1 Firms Explained: The Complete UK Guide

‘Registered with the FCA’ and ‘regulated by the FCA’ sound almost identical — but for a large group of UK financial businesses, the difference between them is the whole story. Annex 1 firms sit in exactly that gap: registered with the Financial Conduct Authority, supervised for anti-money-laundering purposes, but not authorised or subject to the FCA’s wider conduct and prudential rulebook. For most of their history these firms attracted little attention. That changed in 2026, after the high-profile collapse of a specialist lender put the Annex 1 population squarely in the regulator’s sights. This guide explains what Annex 1 firms are, what obligations they carry, where the common misunderstandings lie, and what the recent regulatory attention means for the governance and compliance resource these firms now need.

What is an Annex 1 firm?

An Annex 1 firm is a business that carries out certain financial activities — lending, financial leasing, safe custody, money broking and similar — that fall within the scope of the Money Laundering Regulations 2017 but that do not require full FCA authorisation under the Financial Services and Markets Act. Because those activities can be used to move or launder money, the firms carrying them out must register with the FCA and be supervised for their anti-money-laundering compliance. The name comes from the way these activities are scheduled in the regulations. The defining feature is the split status: the FCA is the firm’s AML supervisor, but the firm is not FCA-authorised and does not operate inside the broader conduct and prudential regime that authorised firms do.

Typical Annex 1 firms include non-bank lenders (including some specialist and bridging lenders), financial leasing companies, safe-custody providers, money brokers and firms dealing in certain high-value goods. They are a large and varied population — well over a thousand firms in the UK — ranging from small operations to businesses handling sizeable sums. What unites them is not their size or sector but that single regulatory characteristic: registered and AML-supervised, not authorised.

Registered versus authorised: the crucial distinction

This is the point that matters most, and the one most often misunderstood — sometimes even by the firms’ own counterparties. Being registered with the FCA as an Annex 1 firm means the FCA supervises the firm for one thing: compliance with the Money Laundering Regulations. It does not mean the FCA has assessed the firm’s financial soundness, its conduct, its treatment of customers, or the competence of its management in the way it does for authorised firms. An authorised firm sits inside the full rulebook — prudential requirements, conduct rules, the Senior Managers regime and much more. An Annex 1 firm does not. For a fuller treatment of this split, our guide on FCA authorisation versus registration sets out the difference in detail.

The practical consequence is significant: an Annex 1 firm can accurately state that it is ‘registered with the FCA’ while being outside almost all of the protections that phrase implies to an ordinary reader. That is not misconduct in itself — it is simply how the regime is designed — but it creates a real risk of misplaced confidence, and it is precisely the misunderstanding that recent events have thrown into sharp relief.

What AML obligations do Annex 1 firms carry?

Although Annex 1 firms sit outside the wider rulebook, their AML obligations are real and material. Registration is not a formality; it brings a set of legal duties under the Money Laundering Regulations that the firm must meet and evidence.

A risk assessment and AML framework

Every Annex 1 firm must carry out and document a money-laundering risk assessment tailored to its own business, and maintain policies, controls and procedures proportionate to those risks. Generic, off-the-shelf procedures that don’t reflect the firm’s actual activities are a common weakness — and one the regulator has signalled it is looking at closely.

Customer due diligence

The firm must carry out customer due diligence — verifying who its customers are, understanding the nature of the relationship, and applying enhanced checks where the risk is higher — alongside know-your-customer and sanctions screening processes. For a lender, that means genuinely understanding the source of funds and the substance of the borrower and the transaction, not merely collecting documents.

An MLRO and proper oversight

The firm needs a nominated officer — a Money Laundering Reporting Officer (MLRO) — responsible for the AML framework and for reporting suspicious activity. In too many smaller firms this role is under-resourced or held by someone without the time or expertise the business’s risk profile demands. Robust oversight, ideally structured along three-lines-of-defence lines, is what turns a paper framework into a functioning one.

Ongoing monitoring and record-keeping

AML compliance is continuous, not a one-off at onboarding: transactions must be monitored, records kept, and the framework reviewed and updated as the business changes. The regulator has specifically flagged firms whose controls have not kept pace with their growth — a framework built for a small firm quietly becoming inadequate as the business scales.

What the MFS collapse changed

For most of their history, Annex 1 firms operated with relatively little regulatory scrutiny beyond registration. That changed in 2026. Following the collapse of a prominent specialist lender that held Annex 1 status, the FCA opened an enforcement investigation and, according to its own public statements, made clear that the firm was registered with and supervised by the regulator solely for compliance with the Money Laundering Regulations, and was not authorised or subject to wider FCA regulation. The case drew widespread attention precisely because it exposed how much sat outside the regulator’s remit for a firm that many counterparties had treated as more comprehensively overseen than it was.

The wider consequence has been a marked step-up in regulatory attention on the whole Annex 1 population. The FCA has publicly signalled that it is seeking information from hundreds of Annex 1 firms, that it is concerned some may be relying too heavily on parent companies or on generic compliance procedures not suited to their business, and that it is alert to the possibility of these firms being used to facilitate financial crime. In short, a category of firm that once attracted little supervisory focus is now under real scrutiny — and the firms within it are expected to demonstrate, not merely assert, that their AML frameworks are fit for purpose. The full FCA statement on the case that triggered this is available on the FCA’s website.

What this means for Annex 1 firms now

The practical message for an Annex 1 firm is straightforward: the expectation has shifted from light-touch registration to demonstrable, well-resourced AML compliance. Firms that treated registration as a box-ticking exercise are the ones most exposed. The sensible response is to revisit the AML framework honestly — is the risk assessment genuinely tailored to the business, are the customer due diligence and monitoring processes actually operating as designed, is the MLRO adequately senior and resourced, and would the framework withstand the scrutiny the regulator is now applying? For many firms, the gap is not intent but capacity: the compliance function was built for a smaller, quieter business and hasn’t kept pace. Experienced, professionally-qualified compliance and finance leadership is what closes that gap, and it is exactly where demand has risen sharply since the regulator turned its attention to the sector.

Where FD Capital fits

We recruit the senior compliance and finance people that FCA-touching firms rely on — MLROs, compliance officers, financial-crime specialists and finance leaders who understand the regulatory environment. For Annex 1 firms specifically, the current environment has created real and pressing demand for exactly this resource: people who can build or upgrade an AML framework, hold the MLRO role credibly, and demonstrate to the regulator that the firm takes its obligations seriously. Through our Annex 1 firm compliance recruitment and our wider recruitment for FCA-regulated firms, we help these businesses put the right people in place — permanent, interim or fractional — before a gap becomes a problem. If your firm needs to strengthen its compliance resource in response to the changed environment, that is precisely what we do.

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