The Solicitors Disciplinary Tribunal has warned that law firms face the prospect of ‘double jeopardy’ if they are under investigation by multiple regulators.
The tribunal said the government’s plans for the Financial Conduct Authority to handle regulation of anti-money laundering threatens to cause confusion for firms and individuals trying to navigate overlapping obligations. A new supervisory body, where the same conduct is considered by FCA and SRA without coordination, creates the potential for ‘duplicate fact-finding, leading to inconsistent outcomes’.
Although the SRA has often been criticised for its approach to AML regulation, the prospect of the FCA becoming the sole supervisor for thousands of firms has been widely dismissed across the legal profession. The consultation response from the SDT does not disagree with the principle but adds weight to the argument that the Treasury plans could add to the burden and uncertainty for law firms.
The tribunal said it would support a single supervisory regime where it could be shown that AML breaches do not involve any other professional standards issues (which would have to be investigated by the SRA).
It added that the proposals ‘must be designed to avoid unintended consequences, particularly delay, regulatory friction/overlap, or overlooking the benefit of misconduct being adjudicated upon by a specialist tribunal’.
The SDT also urged the Treasury to create clear referral mechanisms and information-sharing protocols between regulators to prevent duplication, delay or inconsistency. It further raised the issue of the protection of privilege and confidentiality under any new regime.
The tribunal response added: ‘The primary risk is duplication of investigations and inconsistent factual determinations if FCA information-gathering is not synchronised with SRA processes. A statutory or otherwise binding duty to share evidence promptly with the SRA, where conduct issues may arise, would minimise delay and protect the efficiency and fairness of SDT proceedings.’
The Treasury has accepted that some law firms may experience ‘a degree of dual regulation’ with requirements to register and interact with the FCA and SRA.
As of April last year, 5,683 law firms were in scope of AML regulations and required to produce risk assessments, policies and procedures.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, has said the changes will simplify the supervision of professional services, ensure more consistent oversight and help the authority identify and disrupt crime.
He added: ‘The FCA will work closely with the government, the Office for Professional Body Anti-Money Laundering Supervision, 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.’
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