The UK payments sector continues to expand at pace. E-Money Institutions (EMIs) and Payment Institutions (PIs) are processing increasing volumes of customer funds, cross-border payments, and multi-currency transactions. However, growth inevitably brings heightened regulatory scrutiny.

The Financial Conduct Authority (FCA) has made it clear that financial crime compliance remains a supervisory priority for payment firms. Anti-Money Laundering (AML), Counter-Terrorist Financing (CTF), sanctions screening, and safeguarding requirements now sit at the core of regulatory assessments.

For EMIs and PIs operating in the UK, strengthening your AML framework is no longer optional—it is essential for both authorisation and maintaining critical banking relationships.

Why the FCA Is Increasing Pressure on Payment Firms

The FCA continues to classify payment firms as higher risk due to several structural and operational factors:

• Rapid customer onboarding models

• Non-face-to-face customer journeys

• Cross-border exposure

• Multi-currency product offerings

• Use of agents and programme managers

These characteristics elevate financial crime risk and demand stronger, demonstrable controls.

Proactive compliance is key. Firms should conduct AML gap assessments before regulatory intervention becomes necessary.

Key Financial Crime Risks for EMIs and PIs

1. Product and Jurisdictional Risk

Your financial crime risk profile is directly influenced by your licence permissions and the services you provide.

Common high-risk indicators include:

• Open-loop products without transaction limits

• Cross-border payment services

• Multi-currency wallets

• Exposure to high-risk jurisdictions

• Competitive FX pricing that attracts high transaction volumes

A generic risk assessment will not satisfy the FCA. Your Business-Wide Risk Assessment (BWRA) must be tailored to your specific business model and risk exposure.

2. Weak Customer Due Diligence (CDD)

FCA reviews frequently identify deficiencies in customer due diligence, including:

• Over-reliance on simplified due diligence

• Inadequate verification of beneficial ownership

• Weak Enhanced Due Diligence (EDD) processes

• Insufficient controls for digital onboarding

Non-face-to-face onboarding increases the risk of impersonation and synthetic identities. Firms must be able to clearly evidence:

• Identity verification

• Nature and purpose of the relationship

• Source of funds

• Expected transaction behaviour

Poor CDD remains one of the most common triggers for regulatory enforcement.

Building a Robust AML/CTF Framework

1. The Three Lines of Defence Model

A well-structured AML governance framework should include:

• First Line: Operational ownership of risk

• Second Line: Independent compliance oversight

• Third Line: Internal or external assurance

Boards should receive regular reporting on:

• High-risk customer exposure

• Politically Exposed Persons (PEPs)

• Sanctions alerts

• Suspicious Activity Reports (SARs)

• Compliance breaches

Lack of clear role separation is a significant regulatory red flag.

2. Risk Appetite and Business-Wide Risk Assessment

Your Risk Appetite Statement should define measurable thresholds, such as:

• Maximum proportion of high-risk customers

• Geographic exposure limits

• PEP exposure thresholds

The BWRA must clearly document:

• Inherent risk

• Control effectiveness

• Residual risk

• A consistent and transparent scoring methodology

Template-driven or overly generic assessments will not withstand regulatory scrutiny.

Strengthening Due Diligence and Ongoing Monitoring

1. Enhanced Due Diligence (EDD) Best Practice

Effective EDD should include:

• Verification of beneficial owners and directors

• Understanding the customer’s business model

• Source of funds and wealth verification

• Sanctions and adverse media screening

• Documented justification for risk ratings

While technologies such as biometric verification can enhance controls, firms must ensure ongoing testing and validation of these systems.

2. Ongoing Monitoring and Periodic Reviews

Monitoring must be proportionate and risk-based:

• High-risk customers: Reviewed annually

• Medium-risk customers: Every 1–2 years

• Low-risk customers: Up to every 2 years

Periodic reviews should:

• Refresh KYC documentation

• Re-screen customers

• Analyse transaction behaviour

• Reconfirm the rationale for maintaining the relationship

Transaction monitoring rules should be reviewed at least annually and adjusted in line with business growth and risk exposure.

SAR Reporting and Sanctions Screening

Firms must ensure:

• Clear and accessible internal SAR escalation procedures

• Thorough investigation by the MLRO

• Complete audit trails

• Secure reporting to the National Crime Agency (NCA)

Sanctions screening should extend to:

• Customers

• Beneficial owners

• Counterparties

Effective alert handling requires documented decision-making processes and adequately trained staff.

FCA Safeguarding Expectations: PS21/19

Under Policy Statement 21/19, the FCA strengthened safeguarding requirements for EMIs and PIs.

Firms must obtain reasonable assurance through an independent review covering:

• Governance and breach management

• Identification and segregation of relevant funds

• Safeguarding methods (segregation or insurance/guarantee)

• Reconciliation processes and supporting systems

• Wind-down planning

Why Strong AML Compliance Matters

A robust AML framework delivers tangible business benefits:

• Protects FCA authorisation

• Preserves banking relationships

• Reduces the risk of enforcement action

• Enhances investor confidence

• Minimises operational disruption

Regulators increasingly expect firms to demonstrate not just the existence of policies, but their effectiveness, governance, and evidential support.

Conclusion

Financial crime compliance within the UK payments sector is under sustained regulatory focus. EMIs and PIs must adopt risk-based, well-documented, and defensible AML frameworks aligned to their specific business models.

Now is the time to:

• Review your Business-Wide Risk Assessment

• Reassess customer risk scoring methodologies

• Test and refine transaction monitoring rules

• Strengthen safeguarding documentation

• Validate your Three Lines of Defence

For firms seeking a practical, regulator-ready AML framework, expert guidance can make a critical difference.

Anankai supports EMIs and PIs with FCA-aligned compliance solutions designed to withstand regulatory scrutiny and support long-term growth