FCA takes charge: what a single AML supervisor means for lawyers

The present system of Anti-Money Laundering (AML) regulation, like so many aspects of our legal services landscape, has evolved over time. The current structure of 22 professional bodies supervising lawyers and accountants is unlikely to be the one you would come up with if you were developing a system from scratch. 

We knew reform might be coming, given the Treasury noted weaknesses in AML supervision in its 2022 review of the regime and consulted on alternative models for supervision in the summer of 2023.

It was nonetheless surprising when a single supervisor was announced as the consultation outcome after no official word for two years. Even more surprising was the reveal that this supervisor would be the Financial Conduct Authority (FCA) rather than a new body or one of the existing professional body supervisors.

On the face of it, a single AML supervisor will mean greater consistency, efficiency and accountability and the narrative accompanying the announcement certainly pointed to less burdensome regulation. The reality for lawyers, however, is that this change will mean an unwelcome increase in supervisors and regulation. Ultimately solicitors will have to report to two supervisors, one on conduct and for regulatory issues and one on AML issues. This will likely mean two sets of fees, two sets of approvals, two sets of annual returns, and the possibility of two bodies investigating a single issue.

The legal sector is now awaiting a consultation on the proposed change which should begin to provide some clarity on what powers the FCA is seeking, and in turn what their wider investigation and enforcement regime might look like. The FCA will need powers to bring professional services firms into AML supervision, to require the submission of data, to conduct proactive supervision and investigations, and to bring enforcement action where necessary. All of this will require legislation and as such will be heavily dependent on getting Parliamentary time.

Meanwhile, the situation is unclear for lawyers and the existing professional body supervisors. And this presents a problem. There will likely be a significant transitional period while existing supervisors wind down their activities and the FCA begins their programme. There are a lot of details to be worked out, in particular what happens to open investigations which could either be wound down by the existing supervisor, closed at the point when supervision transfers, or be transferred to the FCA. 

Lawyers inevitably want to know what they should be doing to prepare for the new era of FCA supervision. In my view the most important thing at the moment is to watch and wait. When we begin to get details on timescales and what the new FCA regime may look like, at that point firms can sensibly begin planning what actions they may need to take.

The focus now must remain on firms ensuring business-as-usual is running efficiently. The government has said that those who are compliant under the current system will be compliant under the FCA regime. There may inevitably be changes to supervision style and guidance in due course, but firms’ priority in the here and now should be taking all steps to ensure that any recommendations by current supervisors or auditors have been implemented. Any issues that arise now, may well end up being investigated, and subject to enforcement action brought by the FCA down the line. 

Finally, we will probably see a more data-driven approach by the FCA. So if firms have any IT development underway, it makes sense to think about future-proofing this through ensuring that there is a good ability to query and report data on AML risk and compliance. 

The transition to the FCA is likely to take some time to come into force, and then even more time to move into business-as-usual mode. The road ahead is likely to be a long transition that will bring about a lot of change for how firms interact with their existing and new supervisor. 

Colette Best was the former director of AML at the Solicitors Regulation Authority (SRA)

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