Consumer Credit – are you captured by the Money Laundering Regulations?

In March, the FCA sent a Dear CEO letter to firms they supervise in relation to Money Laundering Regulations (MLRs), otherwise known as “Annex I firms”. The letter raised concerns with inadequate systems and controls with the below summary of their findings:

“Financial crime is a priority for us and initial findings from our data-led review of a sample of Annex I firms indicates that some are still not getting the basics right. We found common issues 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.

All Annex I firms should assess their financial crime controls against the common weaknesses we found within the next 6 months. Where they identify areas where they are falling short of our expectations, they need to act promptly to resolve them.

Where firms do not take suitable steps in response to our letter, they could face regulatory action, including possible enforcement action.”

As you are most likely authorised and not an Annex I firm, you might very well be thinking, why does this matter to me?

Well, the majority of firms in the Consumer Credit sector will not be captured by MLRs. Only those which meet the definitions of a Credit or Financial Institutions under the regulation 10 of the MLRs, which typically would only be lenders.

However, I am raising this because a number of authorised firms with credit broking permissions might also undertake unregulated or exempt business lending or financial leasing. If your firm does, then it will be captured under the MLRs as it would be considered a “Credit Institution” which can be defined as “an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.”

So then, if indeed the above is the case and your firm does undertake unregulated or exempt business lending or financial leasing, then you are expected to adhere to the MLRs and the Dear CEO letter is relevant to your firm.

The letter gave firms until September to undertake the above actions. As well as Annex I firms, any authorised firms which meet the definition of a Credit Institution should be able to demonstrate what actions they have taken, as a result of the aforementioned Dear CEO letter.

We would recommend any firm undertaking activity captured under the MLRs to review their current arrangements and consider whether any improvements are required. If you are unsure of what to do next, feel free to contact us below.

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