FCA to take over AML supervision of legal and accountancy professionals

HM Treasury has announced its plans for the Financial Conduct Authority to become the UK’s single professional services supervisor for anti-money laundering and counter-terrorist financing compliance, bringing legal, accountancy, and trust and company service providers within the FCA’s expanded regulatory remit.

The reform marks a significant shift in the regulatory landscape for professional services firms. Under the proposals, the FCA would assume responsibility for AML/CTF supervision from the current network of professional body supervisors, with powers expected to include registration, gatekeeping checks, risk-based supervision, information gathering, enforcement, and oversight of firms’ compliance with the Money Laundering Regulations.

Regulatory and Dispute Resolution Partner Charles Herbert said the proposed fitness and propriety tests should not, in themselves, alarm the profession, given the high standards of honesty and integrity already required of solicitors. However, he also highlighted the validity of concerns raised by the Law Society around sector-specific supervision, regulatory overlap, additional cost, and the case for expanding the regime.

“The proposal that lawyers will face fitness and propriety tests under the FCA’s AML regime should not cause the profession undue concern as to whether it will be able to meet the necessary standard.

“The FCA guidance (at FIT 1.3.1B of the FCA Handbook) confirms the most important considerations will be (i) honesty, integrity and reputation (ii) competence and capability and (iii) financial soundness. The courts have already stipulated that the standard of honesty required for solicitors is that they may be “trusted to the ends of the earth” (Bolton v Law Society [1993] EWCA Civ 32) and this underpins SRA regulation.

“The significant concerns which have been raised by the Law Society regarding sector specific supervision, cost, regulatory overlap and an unproven case for expansion are however clearly warranted.

“Compliance officers (COLPS) and MLROs within law firms, particularly smaller firms where resource is limited, already face a significant regulatory burden. They now face additional regulatory and administrative requirements and cost where the efficacy of the proposed changes is very much in question.

“The government meanwhile has said both that it deems law firms to be a high-risk area and that it will develop “further detail on the operation of these arrangements” by working with stakeholders. It remains to be seen the extent to which the genuine concerns of the profession and the Law Society are taken into account in this area.”