As we reported to clients in October, the Government dropped the shock announcement in the middle of the SRA’s Compliance Officer’s Conference in October that the SRA will lose its responsibility for AML supervision of solicitors, with the Financial Conduct Authority (FCA) becoming the Single Professional Services Supervisor (SPSS) for all law firms (as well as accountancy firms and trust & company services providers).
There is still no formal timeline for the transition. We are being told by the government that it will “take a number of years”, mainly due to the fact that legislation will need to be passed (and they’ve got rather a lot on their plate at the moment!), but some commentators have suggested we could see legislation in place as soon as August 2027 to coincide with the next Financial Action Task Force (FATF) assessment of the UK, albeit with a transition period thereafter.
The promised consultation on the powers the FCA should have was published in November and closes on 24/12/25. Law firms are strongly encouraged to engage with this consultation and not stay silent! There are a lot of issues which have the potential to seriously impact law firms if not addressed properly now, including:
- duplication of regulation/ costs/ inspections/ enforcement action etc and the impact this may have on law firms’ bottom lines and therefore consumer access to justice. The small matter of the SRA’s new ‘preventing-economic-crime’ regulatory objective (brought in by the Economic Crime & Corporate Transparency Act (ECCTA)), which clearly includes AML, is causing significant concern from a duplication perspective.
- the potential loss of legal sector-specific expertise in the AML space (in terms of both guidance and staff).
- the risk that the FCA will use a one-size-fits-all approach to the very different regulated sectors (law firms operate very differently to accountants, let alone banks).
- concerns about proportionality – particularly the impact on smaller firms – including in enforcement action and, what HMT described as the “buffer zone” of, granting the FCA extended powers to mandate “Skilled Persons Reports” to help firms avoid enforcement action. (These reports apparently do not come cheap).
Having joined one of HMT’s online round table discussions last week, it is clear that a lot still has to be thought through! Most of the concerns raised by attendees were met with the response: We are sure the FCA are aware, will take this into consideration, and will work closely with existing supervisors (such as the SRA) to ensure a smooth transition… However, I came away feeling rather less than “sure” about a lot of things! Attendees commented that it has taken existing legal profession supervisors (of which there are many) decades to build up their existing knowledge of the diverse firms, practitioners and laws within the UK, which the FCA will not be able to pick up overnight. Whilst this was acknowledged, there was very little assurance that it was being taken as seriously as it clearly should be.
The key message from HMT during the roundtable meeting was a plea for consultation responses from the profession to include suggestions as to how HMT/ the FCA should navigate the many concerns raised. Given that none of the professions directly affected by the decision actually voted for the FCA-option in the consultation, one might be forgiven for thinking that they shouldn’t then be expected to put time aside in their busy days to come up with the solutions. However, if the legal profession doesn’t fully engage with this consultation, we may look back in a few years very much wishing we had.
There are clearly still a lot of unknowns so, for now, our advice is to:
- keep doing all you can to comply with current SRA AML expectations (see our blog on their latest AML report) – this will stand you in good stead for whatever changes are coming, and avoid unwanted SRA attention in the meantime.
- if you don’t already do so, start thinking about how you can collect more data on your AML processes (such as exposure to high risk jurisdictions, PEPs, sanctions, other high risk issues; in-scope matters; instructions declined because outside risk appetite; internal & external suspicious activity reports (SARs)) – the FCA is very much data-led, and the SRA are increasingly becoming so. Something to discuss with your software providers?
- engage with the consultation before Christmas Eve (link again here – go to Annex C: Question list and email responses to: anti-moneylaunderingbranch@hmtreasury.gov.uk).
- keep an eye out for further updates.