Due Diligence on Financial Services Companies — UK Guide

The FCA's Handbook, particularly COND and SYSC rules, mandate Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) under MLR 2017. At minimum, verify identity and beneficial ownership of counterparties, directors, and PSCs; screen against sanctions and PEP databases; assess source of funds and business rationale; and obtain audited financials. For regulated entities, verify FCA authorisation status. Enhanced due diligence applies to high-risk counterparties, those from high-risk jurisdictions, or with complex ownership structures—precisely where the 14.8 PSC risk score and 2.6 director risk score suggest heightened scrutiny is warranted.

The average risk score of 2.6 indicates moderate governance concern across the sector's director population. This reflects factors including multiple directorships, previous insolvencies, regulatory sanctions, or directorships in dissolved firms. Scores above 3.0 warrant immediate investigation. Cross-reference high-scoring directors against insolvency registers, FCA sanctions lists, and disqualified directors databases. In financial services, even moderate director risk is material because directors influence regulatory compliance, risk appetite, and operational resilience. Always conduct individual director screening rather than relying solely on aggregate scores.

The 14.1 average ownership concentration score indicates substantial concentration risk across 216,298 firms. Higher scores signal greater governance concern and control concentration. Scores above 15 typically reflect situations where single individuals hold 75%+ stakes with minimal independent oversight. Assess concentration by mapping voting rights, examining board composition, and evaluating independent director presence. In financial services, excessive concentration limits checks and balances, increases fraud risk, and may indicate shell company structures. Request governance documentation including board minutes, shareholder agreements, and conflict-of-interest policies to understand how concentrated power is managed and constrained.

While 132,406 post-2020 formations reflect market opportunity, they present elevated risk: limited operational history, unproven governance maturity, and unknown resilience in stressed conditions. The sector's 0.8% dissolution rate masks that newer cohorts may have different failure patterns. For these younger firms, scrutinise track record of founder/director group, verify funding sources, validate claimed regulatory relationships, and obtain detailed business plans. Request longer financial histories from predecessor entities, and consider requiring enhanced financial covenants or escrow arrangements. The rapid growth cohort lacks the demonstrated stability of 9.1-year-average-aged sector peers, justifying heightened due diligence intensity.

Cross-reference every counterparty's claimed FCA regulatory status against the official FCA Register (register.fca.org.uk). Verify that the regulated entity name matches Companies House records exactly. Confirm authorisation scope covers your intended transaction type (investment business, credit activities, etc.). Request certified copies of regulatory permissions. Watch for discrepancies: Companies House showing active entity but FCA register showing inactive/revoked status, or vice versa. Request copies of latest FCA-regulated annual reports and regulatory capital returns. For major counterparties, obtain regulatory correspondence and recent supervisory assessment reports. Companies House records provide structural and ownership truth; FCA register confirms regulatory standing and permissions.