There has been an ongoing debate in the UK about anti-money (AML) supervision. Those institutions, businesses and professions which are most likely to be targeted by criminals to launder money must abide by strict standards to identify customers and to prevent their services from being exploited.
If you were to design a system from scratch, you would likely not come up with the current regime comprising 25 different AML supervisors, with 22 of those being professional body supervisors for lawyers and accountants. However, the existing system has evolved over time and provides specialist expertise for the money laundering issues posed to, and by financial services organisations, as well as art market providers, casinos, conveyancers, lawyers and accountants.
So there was a good deal of surprise last week when the government announced that lawyers, accountants and company service providers will in future be supervised by the FCA for money laundering purposes. This follows a consultation on the subject and the outcome has been billed as a simplification of regulation and a move to reduce burden. But for many lawyers and accountants, far from simplifying their responsibilities, this will double them, meaning that they will answer to a professional body such as the Solicitors Regulation Authority (SRA) for conduct matters, and the FCA for their controls in preventing money laundering.
The changes will need legislation to give the FCA powers to supervise lawyers and accountants. To run an effective regime, the FCA will need to approve firms, collect information from them, undertake proactive supervision and bring enforcement action where necessary. The winding up of the existing supervision by 22 professional body supervisors and the creating of powers and capabilities within the FCA will take some time, and professional body supervisors will need to be able to keep the show on the road in the meantime.
One thing that will be front and centre of Civil Servants’ minds will be the upcoming evaluation of the UK’s efforts to prevent money laundering. The UK will be assessed by the Financial Action Taskforce (FATF), the global standards-setting body in 2027. Amongst many other factors in preventing money laundering, the assessment will consider how well the supervision of lawyers and accountants is operating. At the last assessment in 2018 the UK was rated partially compliant in this area. A poor overall rating can be a huge headache for governments, and countries with deficiencies become monitored or designated high risk by FATF (ie being grey-listed or blacklisted on common parlance). Grey or black-listed countries face increased costs and barriers to global trade and this can be a body-blow to the economy – the last thing a government seeking growth needs.
The new system will likely bring a new, more data-driven approach by the FCA. It will also unify standards. The professional body supervisors’ oversight body OPBAS (the Office for Professional Body Supervision) has noted that there are currently different levels of supervision, different approaches to enforcement and different levels of fining powers between the existing 22 supervisors. In theory this can lead to regulatory arbitrage and similar breaches being treated differently from firm to firm. A single standard of AML check could lead to greater confidence by different providers in for instance, a property transaction. As it stands there are often separate checks by estate agents, lawyers and banks, but in the future, the amalgamation of supervision, along with changes to digital ID could make checks smoother and simpler for consumers.
There are many questions to answer arising from last week’s announcement, and lots of issues to work through before the changes come into force. The FCA will need to ensure that its new regime works for lawyers and accountants as well as financial services, otherwise we could see major costs being added to the provision of professional services in the UK.
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