The government has acknowledged that ‘a degree of dual regulation' will occur when law firms are overseen by two different regulators – but said it will minimise any extra burden.
In a newly-published consultation on the transfer of AML supervision to the Financial Conduct Authority, the Treasury accepted that some firms may experience ‘a degree of dual regulation’ with requirements to register and interact with the FCA and Solicitors Regulation Authority.
The FCA will be left to work out how this will operate in practice, but it is likely there will be a single registration gateway for firms through which relevant data is shared between bodies. Regulators will also be encouraged to make structured information-sharing arrangements to reduce the burden on firms being asked the same questions by multiple organisations.
'The government’s primary goal is to ensure effective AML/CTF supervision for professional services firms,’ said the consultation. ‘However, it is important that additional requirements on firms, including data requests, are mitigated. To this end, the government envisages that information-sharing between the FCA and existing professional bodies and HMRC will be key in minimising the regulatory burden on firms.
‘We propose to place a legislative requirement on the FCA and existing bodies to work together to agree an information-sharing regime that minimises requests of firms whilst ensuring that all bodies have the necessary information to meet their objectives effectively.’
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As of April last year, 5,683 law firms were in scope of AML regulations and required to produce appropriate risk assessments and policies and procedures. The SRA reported that having increased its proactive AML engagements from 273 in the previous year to 545, just 22% of firms were found to be fully compliant. Dozens of firms have been fined five-figure sums (all paid to the Treasury) for non-compliance in the last two years.
It was announced last month by chancellor Rachel Reeves that the SRA and 21 other AML supervisory bodies would be stripped of their powers, with the FCA to be designed as single professional services supervisor.
Details of how this will work are subject to the Treasury consultation, but there are several indicators about the scope and extent of the authority that the FCA will have over law firms.
The FCA could register all in-scope firms, conduct appropriate gatekeeping checks, and have powers to accept, deny, suspend, or cancel registrations. It is proposed that the FCA funds its supervisory activity through fees charged to supervised firms to cover costs.
The Treasury proposes for the FCA to be required to maintain a public register of every professional services firm it supervises for AML purposes and for firms to be required to register with the FCA to carry out in-scope regulated activities. The consultation runs until 24 December.
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