The government has confirmed that the Financial Conduct Authority (FCA) will assume responsibility for supervising lawyers’ anti-money laundering (AML) and counter-terrorist financing (CTF) compliance – replacing the Solicitors Regulation Authority (SRA) and other professional bodies currently fulfilling that role.
HM Treasury says the reform aims to “simplify a highly complex regime” and bring professional services into line with other FCA supervised sectors.
The change will see the FCA becoming the Single Professional Services Supervisor, overseeing AML/CTF compliance for legal services, accountancy and trust and company service providers under the Money Laundering Regulations 2017.
Approximately 6,500 SRA-regulated law firms will have two regulators: the FCA for AML and CTF matters and their existing professional regulator (SRA, BSB, CLC, or CILEx) for all other matters.
The implementation of this reform depends on enabling legislation, funding arrangements and a detailed transition plan, meaning timings are currently unclear.
What is clear is that these changes will have consequences. These include:
- Stronger enforcement: the FCA’s data-driven, risk-based supervision model promises increased consistency and accountability
- Proportionate approach: low-risk firms could receive lighter-touch oversight, aligning supervision with actual AML risk
- Dual regulation: firms will answer to both the FCA and their existing regulator, risking duplication of fees and reporting
- Loss of sector nuance: some concerns persist about how well a financial regulator will grasp issues like legal privilege or the diversity of law firm models
- Cost pass-through: some commentators expect increased compliance costs, such as system upgrades and enhanced governance structures, to be passed on to clients
There are numerous steps that law firms can take in advance of the transition. These include auditing their AML/CTF framework to identify any gaps that might not meet FCA standards and engaging leadership early, as senior management accountability will be central to the FCA’s approach.
Law firms must also prepare for higher scrutiny as more data-driven inspections and on-site reviews are likely and should monitor Treasury consultations, as the next phase will define how the FCA’s powers are structured.
Speak to our team
Finally, consider seeking specialist legal advice on how you can meet your AML/CTF obligations both now (under the SRA) and in the future (under the FCA). Contact us online to speak to Kelvin or another member of our corporate team.
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