Annex I Lenders: Why the FCA Is Looking Closely

What is an Annex I institution?

Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “MLRs”), businesses that carry on certain financial activities, but which are not authorised under the Financial Services and Markets Act 2000, must register with the Financial Conduct Authority (“FCA”) for anti-money laundering (“AML”) supervision. These businesses are commonly referred to as Annex I financial institutions.

Lending is the most common Annex I activity. It covers a broad range of credit, including commercial lending, credit agreements relating to immoveable property, factoring and the financing of commercial transactions. Other Annex I activities include financial leasing, offering guarantees and commitments, safe custody services and money broking.

Registration is not authorisation. Annex I firms are supervised by the FCA for AML purposes only. They are not subject to the wider FCA Handbook, but they must be able to show that they comply with the MLRs in full.

Why does this matter for real estate lenders?

A significant proportion of Annex I firms are real estate lenders. This includes bridging lenders, development finance providers and commercial property lenders, where the lending falls outside the scope of regulated mortgage activity. These businesses are often established through dedicated lending vehicles or special purpose vehicles (“SPVs”), funded by private capital, family offices or investor loan notes.

Property has long been recognised as a sector exposed to money laundering risk. High-value assets, complex ownership structures, offshore borrowers and third-party funding all increase the importance of knowing who a lender is dealing with, where the money comes from and where it is going. A real estate lender sits at the centre of these flows and is expected to manage those risks accordingly.

The FCA’s focus on Annex I firms

The FCA has made clear that Annex I firms, and unregulated lenders in particular, are a supervisory priority. In August 2026 it published a statement confirming that it is applying increased scrutiny to the sector. The key messages are:

• Financial crime risk. The FCA is concerned about the potential for Annex I firms to facilitate financial crime.
• Group reliance. Firms have been relying too heavily on the financial crime controls of their parent company. Each entity in a group must assess whether those controls are appropriate for its own risks, governance and operations.
• Off-the-shelf procedures. Firms cannot rely on generic procedures designed for a different business. Controls must be tailored to the way the firm actually operates.
• Complex structures. The FCA has highlighted the risks to consumers and markets from unregulated lending carried out through complex structures, including SPVs.
• Longer registration timelines. Applications are being closely scrutinised and firms should expect them to take longer. Applicants must clearly demonstrate that they can comply with the MLRs.
• Sector-wide information requests. The FCA has sent an information request to around 900 registered Annex I firms, following earlier work with around 300 firms in late 2025, meaning all registered Annex I firms will have been contacted.

This is not a theoretical concern. In October 2026 the FCA announced that restrictions had been placed on six unregulated lenders following concerns about their AML policies, controls and procedures identified during the assessment of their applications. The restrictions limit their ability to take on new customers or to do new business with existing customers, including extending existing credit. In one case, the firm is required to run down its existing loan book in an orderly way.

The FCA has also reminded regulated firms that deal with Annex I firms, such as banks, brokers and funders, that they must carry out their own due diligence, including seeking direct confirmation of registration status. Registration alone is not a substitute for that due diligence. In practice, this means that weak AML arrangements at an Annex I lender can also affect its access to banking, funding and distribution.

What does the FCA expect to see?

Taking into account the nature, scale and complexity of its business, an Annex I lender should be able to evidence:

• A business-wide financial crime risk assessment specific to its lending activities, borrowers, funders and geographies.
• A customer risk assessment methodology that drives the level of due diligence applied to each borrower and, where relevant, each funder.
• Documented AML policies and procedures that reflect how the business actually originates, underwrites and monitors loans.
• A nominated officer with clear responsibilities, sufficient authority and access to information, and appropriate internal reporting and escalation arrangements.
• Customer due diligence, including sanctions, PEP and adverse media screening, enhanced due diligence where required and ongoing monitoring across the life of the loan.
• Governance and oversight at the level of the registered entity, rather than reliance on a parent or affiliate.
• Regular training, a compliance calendar and evidence that the framework is operating in practice.
  
  

How Suntera can help

Suntera UK is a regulatory solutions provider with deep experience in AML and financial crime compliance, supporting a wide range of regulated and Annex I firms. We help real estate lenders meet FCA expectations in a way that is proportionate to their business and works in practice. Our support includes:

• Registration support. We assess whether your activities, and each entity in your structure, require registration, and hold the pen on the FCA registration form, individual forms and covering letter, including responding to FCA questions.
• AML framework and governance. We prepare a suite of policies and documents tailored to your business, including the business-wide risk assessment, customer risk assessment, nominated officer reporting and allocation of responsibilities, internal SAR forms, PEP assessment forms and CDD reliance letters.
• Gap analysis and remediation. We review your existing arrangements against the MLRs and the FCA’s stated concerns, including group reliance, and recommend practical remediation.
• AML managed services. For firms without the internal resource or capacity, we can carry out customer due diligence on borrowers and lenders, screening, enhanced due diligence investigations and ongoing monitoring.
• Ongoing oversight and assurance. We provide AML audits, compliance calendars, regulatory advisory support and AML and financial crime training for relevant personnel.

Our support can be provided on a project basis or as an ongoing arrangement, and can be tailored to the size and risk profile of your business, whether you are a new lender preparing for registration or an established lender responding to an FCA information request.

Get in touch

If your firm carries on Annex I lending activity, is preparing to register with the FCA, or is unsure whether its current arrangements would withstand FCA scrutiny, please contact Max Cunningham or Mike Booth to discuss how we can help.

The information in this publication is intended for general guidance only and should not be applied to individual circumstances without professional advice.