FCA to take over anti-money laundering supervision of lawyers

The Financial Conduct Authority (FCA) will take over responsibility for supervising lawyers’ anti-money laundering and counter-terrorism financing (AML/CTF) activities, HM Treasury has announced.

The outcome of its long-awaited AML consultation was announced on 21 October, rejecting the Solicitors Regulation Authority’s (SRA) bid to become the sole supervisor for all lawyers.

Under the current regime, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) oversees nine legal and 13 accountancy AML supervisors, including CILEx Regulation and the law societies and bar councils of the three UK jurisdictions.

In its 2023 consultation, HM Treasury set out four options for reform: the first was ‘OPBAS+’, with greater powers, including to levy fines – the preference of many legal sector respondents – the second consolidated professional body supervision under a single legal sector supervisor.

The third was to create a new organisation to undertake the task for both lawyers and accountants, while the fourth would expand this body to include other regulated sectors.

HM Treasury has chosen the third option, adding the new role of single professional services supervisor (SPSS) to the responsibilities of the FCA. This covers legal services, accountancy services, and trust and company service providers.

All regulated lawyers covered by the Money Laundering Regulations 2017 will now have two regulators – the FCA for AML activities and their existing regulator (the SRA, Bar Standards Board, Council for Licensed Conveyancers or CILEx Regulation) for everything else.

Implementation of the change is subject to the passage of enabling legislation, confirmation of funding arrangements, and development of a “detailed transition and delivery plan”, with the date on which the FCA would take over supervision “heavily dependent on the availability of parliamentary time”.

“The government believes that a public organisation overseeing professional services firms is the most effective approach to AML/CTF supervision of the sector,” the Treasury said.

“Integrating professional services into the FCA’s AML/CTF supervisory framework will bring professional services in line with all other sectors in scope of the MLRs, which are already overseen by public bodies, and it will simplify a highly complex regulatory regime.

“This supervisor will have a large remit, supervising all professional services firms. This will enable it to take a risk-based approach across a population of approximately 60,000 regulated firms.

“This means it can target resources towards the UK’s highest risk accountancy, legal, trust and company service providers, and ensure that lower risk firms receive supervisory attention appropriate to their risk-profile.”

SRA CEO Paul Philip said he was “disappointed” by the decision, while Sheila Kumar, chief executive of the Council for Licensed Conveyancers, which will also lose its AML role, said: “This is not the outcome we had expected because, as we and others – including all the other legal sector regulators – made clear to HM Treasury in response to the 2023 consultation, it will create a dual supervision regime and risks increasing the burden on the regulated community and a financial burden that will be passed on to users of legal services.”

Law Society president Mark Evans said the decision “comes with many challenges”, including the cost implications of implementing the new model and the danger of increasing regulatory burdens.

Steve Smart, executive director of enforcement and market oversight at the FCA, said: “We recognise the benefits of an improved regime for anti-money laundering supervision. These changes will simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime.

“The FCA will work closely with the government, the Office for Professional Body Anti-Money Laundering Supervision, professional body supervisors, HMRC, the firms we will be supervising and others, as we work together to equip the UK to better fight financial crime.

“We can draw on our extensive expertise in this area to facilitate a smooth transition and ensure effective regulation.”