Chancellor Rachel Reeves has announced the Financial Conduct Authority (FCA) will become the Single Professional Services Supervisor (SPSS) for anti-money laundering (AML) as part of her ‘blitz’ on ‘pointless admin’
In an effort to save £6bn per year by 2029 the chancellor has announced sweeping changes to business bureaucracy at a Regional Investment Summit in Birmingham. The role of the Solicitors Regulation Authority (SRA) in overseeing AML and Counter-Terrorism Financing (CTF) will be significantly reduced as a result.
The decision comes in the wake of the government’s 2023 consultation on reforming AML and CTF which is critical of the current regime, describing it as ‘complex and disjointed.’ The report goes on to say
“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.”
Moving responsibility for AML supervision to the FCA made sense, said Lucy Rigby in her Ministerial Foreword to the report, adding
“The FCA itself currently supervises the compliance of financial institutions with the Money Laundering Regulations. This existing expertise will aid the transition for firms and ensure that the UK’s future regime is effective. The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is also 6 based within the FCA, providing professional services experience that will further aid the transition.”
Despite misgivings raised in consultation responses around sector specific expertise and insight, the consultation response says the FCA will build specific expertise in the each of the sectors it supervises: “This includes issues such as legal privilege, the importance of which we recognise, as well as the distinct legal systems of England and Wales, Scotland, and Northern Ireland.”
Subject to a further consultation on the SPSS powers, which will launch in November, and legislation to enact the change, the FCA will supervise firms that carry out activities within scope of the Money Laundering Regulations as Legal Service Providers (LSPs), Accountancy Service Providers (ASPs), and Trust and Company Service Providers (TCSPs).
The consultation response indicates the feedback of legal services respondents preferred a different model of regulation from the one the government has settled on. OPBAS+ would have seen the creation of either one accountancy sector supervisor and one legal sector supervisor, with UK-wide jurisdiction, or one accountancy sector supervisor and one legal sector supervision for each jurisdiction (England and Wales, Scotland, Northern Ireland); a point raised by Law Society of England and Wales president Mark Evans. A single supervisor comes with many challenges, said Evans.
“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.
“In its new role, the FCA should have a greater focus on proportionate risk-based regulation, rather than blind compliance. There must also be a careful transition between the SRA and the FCA, so that cost and complexity risks are mitigated for our members and their clients.
“It is vital that representative bodies, such as the Law Society, continue to play a central role in shaping and contributing to legal sector-wide guidance.”
He added the Law Society is ‘ready to work’ with the FCA on the implementation of the SPSS model to ensure member are not adversely affected. If there is any reassurance for firms, its that the proposed reforms will not change firms’ obligations under the money laundering regulations, and firms that are already compliant should not need to make changes to their AML/CTF controls according to the consultation response.
Conveyancing and probate regulator the Council for Licensed Conveyancers Chief Executive Sheila Kumar echoed Evans’ comment saying
“This is not the outcome we had expected because, as we and others (including all the other legal sector regulators) made clear to HM Treasury in response to the 2023 consultation, it will create a dual supervision regime and risks increasing the burden on the regulated community and a financial burden that will be passed on to users of legal services. We await the detail and the next consultation on the operation of the new arrangements.
“The CLC will be working with HM Treasury and the FCA and the other legal sector regulators to ensure the new system is as efficient and effective as possible in tackling money laundering and terrorist financing. We are concerned that creating a separate regime for AML supervision will require significantly more coordination between front line regulators like the CLC and the FCA as the supervisor of AML compliance but risks opening up gaps in the insight that we currently have across all areas of the practices that we regulate.”
The accountancy sector has responded with similar disappointment to the decision which it says risks increasing the regulatory burden and costs to firms. Chair of the Institute of Chartered Accountants in England and Wales (ICAEW) Regulatory Board Parjinder Basra said the decision will make ‘business growth more challenging, while creating greater confusion within the regulatory framework and leading to even more fragmentation in the way key information is held and maintained about the activities of professional services firms.’ He concluded
“We intend to continue to engage with ministers and Treasury to ensure that all of the ramifications of this decision are understood, and to suggest alternative ways forward.”
Reacting to the decision joint executive director of enforcement and market oversight at the FCA Steve Smart said
“We recognise the benefits of an improved regime for anti-money laundering supervision. These changes will simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime.
“The FCA will work closely with the Government, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), Professional Body Supervisors, HMRC, the firms we will be supervising and others, as we work together to equip the UK to better fight financial crime. We can draw on our extensive expertise in this area to facilitate a smooth transition and ensure effective regulation.
“The new regime will create enhanced opportunities for collaboration with key partners, including law enforcement, to tackle money laundering. The FCA operates nationwide and we anticipate having a significant presence for this new regime in our offices outside of London.”
