Legal sector feeling subdued as regulator loses its AML powers
The Treasury’s decision to transfer oversight of anti-money laundering and counter-terrorism financing supervision to the FCA has sparked concerns within the professional services sector.
The Solicitors Regulation Authority (SRA) served as a Professional Body Supervisor (PBS) for AMLCT for law firms across England and Wales, while for the accountancy sector, the HMRC plays the supervision role.
The government initiated a consultation in 2023 to reform the system and align it with its Economic Crime Plan. After two years, the decision is to create a Single Professional Services Supervisor (SPSS), with the Financial Conduct Authority (FCA) taking on the new role.
City minister Lucy Rigby MP stated: “The fact that there are 23 different supervisors for professional services firms inevitably leads to inconsistencies in supervision and enforcement and complicates essential collaboration with law enforcement agencies.”
However, the move to transfer power to the FCA has been met with disappointment from the legal sector, as well as the accountancy sector, including CIMA and ICAEW.
Powers to shift over to City watchdog
A spokesperson for the SRA said: “We have made significant progress in recent years, increasing and improving our approach to anti-money-laundering supervision, making sure we are proactive and targeted, while supporting compliance.”
“We are disappointed we won’t be able to build on that work,” they added.
The Law Society expressed concern that the government had opted for a system that comes with challenges.
“The government must carefully manage the cost implications of implementing an SPSS model and avoid increasing regulatory burdens that could undermine the competitiveness of our world-beating legal services sector, especially given the extensive changes required,” Mark Evans, president of the Law Society, said.
Over the years, the SRA’s interest in AML cases increased as its enforcement had surged.
Its annual report, published in November 2024, revealed that while the number of reports of potential AML breaches (235 reports in 2017/18 and 227 reports in 2023/24), the number of AML-related matters determined by the Authority over the same period increased sevenfold, from ten cases in 2017/18 to 74 in 2023/24.
However, as part of its reasoning, the government believes that having the City watchdog oversee professional services firms is the most effective approach, as the FCA already supervises financial institutions.
“The FCA is not a natural supervisor for legal services and there are a lot of questions to be answered,” stated Colette Best, director at Kingsley Napley.
“In particular, firms will need to know the timescale for this change, whether they will need FCA authorisation and what happens to AML supervision in the meantime.”
“There is also a question over whether the SRA will retain their wider responsibilities to promote the prevention and detection of economic crime,” she added.
FCA told to create specific legal strategy
While Simon Morris, partner at CMS, highlighted: “Handing the FCA another 60,000 firms to oversee more than doubles its remit, dwarfing the flawed transfer a decade ago of consumer credit regulation from the Office of Fair Trading (OFT) to the FCA.”
“This is a welcome step if there is a disciplined transition,” Ali Ishaq, Partner, Reed Smith. He stressed: “We need an FCA legal‑sector AML strategy with measurable metrics and thematic priorities as well as embedded legal specialists, practitioner panels to shape guidance, analytics to identify network risks, and feedback loops with law enforcement on suspicious activity reports and joint operations.”
Lloyd Hatton, member of the APPG Anti-Corruption and Responsible Tax and of the Public Accounts Committee, also stated, “To ensure that this reform drives higher standards in our professional services, we must ensure that the FCA is given the resources and the powers to crack down on wrongdoing.”
The implementation is still subject to the passage of enabling legislation, and the Treasury will publish a separate consultation on the new supervisor’s powers. But the coming months will be crucial as the sector seeks clarity on the future of AML supervision.
Eyes on the Law is a weekly column by Maria Ward-Brennan focused on the legal sector.