The regulator said Annex 1 firms, which also include money brokers and financial leasing companies, should register with the FCA for anti-money laundering (AML) purposes.
It said any firms carrying out these activities without being registered should submit an application for registration.
The FCA said it would closely scrutinise Annex 1 applications and this would lengthen the process. It reminded firms applying to register to demonstrate their compliance with money laundering regulations.
It expressed concerns around the potential for Annex 1 firms to “facilitate financial crime”, adding that firms relied too heavily on the financial crime controls of parent companies.
The FCA said: “Each individual firm within a group must assess whether these controls are appropriate for their financial crime risks, governance and operations. They also can’t rely on off-the-shelf procedures designed for a different company.
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“Each must have controls tailored to the way they operate and the risks they need to manage.”
The regulator is also worried about the risks to consumers and markets from unregulated lending conducted through complex structures, such as special purpose vehicles (SPVs).
In March, the FCA issued a notice to regulated firms reminding them to practice due diligence when dealing with unregulated lenders and other Annex 1 firms as the regulator’s rules did not fully extend to these firms.
The notice was published on the same day the regulator announced its investigation into Market Financial Solutions, which was registered as an Annex 1 firm.
The FCA said regulated firms should “continue to do their due diligence and understand the business of firms they are dealing with – including seeking direct confirmation of their registration status”.
It has also sent an information request to around 900 Annex 1 firms to better understand their activities, business models and risks. The FCA contacted 300 firms at the end of last year, meaning its communications will cover all registered Annex 1 firms.
The FCA said: “We will use this and other intelligence to identify and disrupt financial crime risks in this sector.”
Brokers and packagers recently spoke to Specialist Lending Solutions about their due diligence process following increased checks within the specialist lending sector.
