FCA Restricts Six UK Lenders Over Anti-Money Laundering Concerns

Key Takeaways

• Six Lenders Face Restrictions: The FCA has restricted six unregulated UK lenders after raising concerns about their anti-money laundering policies, controls and procedures.
• Lending Activities Limited: The restrictions affect the firms' ability to accept new customers, enter into lending arrangements and receive payments from existing borrowers, with conditions varying by company.
• Independent Reviews Required: Five lenders must undergo independent reviews of their anti-money laundering frameworks, while Kingscrown Finance must wind down its existing loan book.
• Approximately 900 Firms Under Scrutiny: The FCA is reviewing responses to an information request sent to around 900 registered Annex 1 firms to identify financial crime risks and determine whether further intervention is necessary.
• Due Diligence Obligations Reinforced: The FCA has reminded authorized financial institutions that Annex 1 registration does not replace their obligation to independently verify counterparties and assess financial crime risks.

Deep Dive

Six British lending firms have had their business activities restricted after the Financial Conduct Authority raised concerns about their anti-money laundering controls, with one company required to wind down its existing loan book and five others ordered to undergo independent reviews.

The measures come from the FCA's assessment of applications from lenders that operate outside its wider regulatory regime but must register for anti-money laundering supervision. The restrictions were imposed at the request of each firm after the regulator questioned the adequacy of their policies, controls and procedures.

The companies belong to a category known as Annex 1 firms. Although they are not authorized by the FCA or subject to its broader regulatory requirements, they must register under the UK's Money Laundering Regulations. Their activities can carry heightened risks of money laundering and other financial crime, making the effectiveness of their internal safeguards a particular concern for the regulator.

Kingscrown Finance Ltd was the first to face restrictions, initially imposed on April 21. Further measures introduced September 25 limited how the company may receive payments from existing customers and required an orderly wind-down of its loan book.

The FCA subsequently restricted four more lenders over three days in October. On October 7, MOMSB Ltd and Momentus Capital Ltd were prevented from accepting new customers or entering into new lending arrangements, subject to limited exceptions. Both companies also face restrictions on receiving payments from existing borrowers and must undergo independent reviews of their anti-money laundering frameworks.

Similar measures followed on October 9 against Grosvenor Funding Ltd and Grosvenor Funding (North West) Ltd. Neither company may accept new customers or enter into new lending arrangements under the restrictions. Both must also submit to independent reviews of their anti-money laundering frameworks, while their ability to receive payments from existing customers has been limited.

The sixth lender, Abbital Ltd, was restricted on October 15. Its measures specify the circumstances in which it may accept new customers, enter into lending arrangements or receive payments from existing borrowers. The company must also commission an independent review of its anti-money laundering systems and controls.

The FCA has not provided detailed findings about the control weaknesses identified at each company in its October 23 announcement. It has not alleged in that announcement that the lenders engaged in money laundering, nor has it announced financial penalties against them in connection with the restrictions.

The measures nevertheless impose immediate limits on how the companies conduct business. For five of the lenders, independent examinations of their anti-money laundering arrangements are now required. Kingscrown faces the more extensive obligation of winding down its existing loan book.

The regulator has previously warned Annex 1 firms that they must demonstrate a sufficient understanding of the financial crime risks associated with their activities and maintain effective systems to manage them.

"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," said Steve Smart, the FCA's executive director lead for fighting financial crime.

Scrutiny Extends to 900 Firms

The restrictions come as the FCA examines responses to an information request sent to approximately 900 registered Annex 1 firms. The regulator is using the exercise to identify financial crime risks, disrupt potentially harmful activity and determine where further supervisory action may be necessary.

The review extends beyond the six lenders named in the latest announcement, although the FCA has not disclosed how many additional firms may face restrictions or other intervention.

The regulator has also reminded authorized financial institutions that dealing with an Annex 1 firm requires more than checking whether it appears on the FCA's register.

Those institutions must conduct appropriate due diligence, including seeking direct confirmation of a firm's registration status, independently verifying the information it provides and understanding the risks associated with the relationship.

The distinction between registration and authorization is important here. Annex 1 firms are registered for supervision under the Money Laundering Regulations, but that status does not mean the FCA has authorized their wider business activities. Nor does registration relieve other financial institutions of their responsibility to assess the risks of dealing with them.

For authorized firms, the FCA's warning is a reminder that regulatory registration cannot stand in for their own checks. They must satisfy themselves that they understand the businesses with which they deal and the financial crime risks those relationships may present.

The regulator has given no timetable for completing its assessment of the approximately 900 firms. Its latest intervention establishes what can happen while that scrutiny continues, with restrictions on lending activity, independent reviews and, in Kingscrown's case, the required wind-down of an existing loan book.

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