The government has announced today that following the 2023 consultation – Reform of the Anti-Money Laundering and Counter-Terrorism Financing Supervision Regime – the Solicitors Regulation Authority (SRA) is to lose its law firm AML supervision responsibilities to the Financial Conduct Authority (FCA).
There has been talk of collecting all professional services under one umbrella AML supervisor for a while now, with the SRA seeking to become that body….but that was clearly not to be! The FCA has pipped them to the post and will become the Single Professional Services Supervisor (SPSS) for AML, meaning that all law firms in scope of the Money Laundering Regulations (MLRs) will be supervised by the FCA.
The Law Society has published its thoughts on the announced changes (here) including concerns about the costs implications of implementing a single supervisor model (given legal services providers will have two supervisors going forwards – one for AML (the FCA) and one for professional conduct and other matters (e.g. the SRA)) and the risk of increased regulatory burdens for the legal sector as well as the risk of loss of legal sector-specific expertise (e.g. in relation to legal privilege). They had argued in the consultation for separate supervisors for the legal and accountancy sectors, but it appears that the financial and public sectors preferred the SPSS route, and the government decided it made sense given The Office for Professional Body AML supervision (OPBAS) is already based within the FCA.
Timing-wise, there is nothing concrete in place, with the reform being subject to “the passage of enabling legislation, confirmation of funding arrangements, and development of a detailed transition and delivery plan”. When there will be parliamentary time for this is currently unknown. The next step is for the government to publish a separate consultation on the powers that the SPSS should have in early November. They have also promised to publish “in due course” an impact assessment, including estimated costs and benefits in particular to address concerns about the costs associated with duplication of supervision for the legal sector, such as registration processes, fee payments and provision of information.
Key takeaways
- Firms’ obligations under the MLRs are not changing so keep those Firm Wide Risk Assessments and AML policies and procedures up to date and followed on the ground! The consultation response says, “Firms that are already compliant should not need to make changes to their AML/ CTF controls”.
- Firms that are not compliant should take immediate steps (if you weren’t already) to do so as “the FCA will be equipped to take strong enforcement action where it is necessary”. Don’t think that the FCA is going to be softer than the SRA!
- While we await further guidance, firms must remain compliant with current SRA guidance and expectations.
- This is a new frontier….whether we will be looking back at the SRA supervision through rose-tinted glasses is yet to be seen! Inevitably it will be a big change for law firms, with the FCA being a very different beast to the SRA. What it will mean in practice will become clearer over time. Watch this space for news on guidance for the transition period and updates to the Legal Sector Affinity Group (LSAG) guidance.