Money laundering: new office to supervise the supervisors

The Treasury has rejected an argument by the Solicitors Regulation Authority (SRA) that it needs full separation from the Law Society to avoid any interference in its operation of anti-money laundering (AML) rules.

The regulator had tried to use a call for evidence on the AML supervisory regime to bolster its lobbying for structural independence beyond the operational independence it currently has.

The SRA argued that “rather than putting in place safeguards” to ensure sufficient separation between regulation and representation in AML supervision, the Treasury should impose “actual separation”.

However, issuing the consultation response yesterday – in which it said there was to be a new Office for Professional Body AML Supervision, hosted by the Financial Conduct Authority – the Treasury did not go this far.

It said: “The office will have an ongoing dialogue with professional bodies as it sets out guidance on how they might meet their obligations in the regulations, drawing on and promoting best practice in the sector.

“As far as appropriate, the office’s guidance will cover all obligations on professional bodies under the regulations from ensuring operational independence between their advocacy and supervisory teams, to ensuring they monitor their members and take necessary action to ensure their members’ compliance with the regulations, to ensuring they provide adequate training for their staff and their members.”

However, the Ministry of Justice’s commitment from December 2015 to introduce full separation has not been contradicted since, but nothing has been done to implement it.

The new AML office has the potential to be increase costs for lawyers and other professionals, however, as it will be funded through a new fee on professional body supervisors.

The overall aim of the changes announced yesterday, including creation of the office, is to ensure “a consistently high standard of supervision” across the 25 supervisors – a mixture of self-regulatory bodies and regulators – that oversee their members’ AML activities.

The obligations on supervisors will be clarified, and “key guidance” updated and published, by June 2017, when the Money Laundering Regulations 2017 become law to implement the Fourth Money Laundering Directive.

The government said it would consult on the draft regulations that will underpin the office over the summer, then they will be finalised and laid before Parliament in the autumn. It expects the office to be fully operational by the start of 2018.

Among the office’s powers will be to set out guidance on how professional bodies should fulfil their obligations under the money laundering regulations; to monitor professional bodies’ activities; to work with professional bodies to ensure they meet their obligations under the regulations, and if necessary to ensure compliance it may publicly censure or recommend that Treasury remove a professional body as an AML supervisor.

Following earlier consultations, the Treasury yesterday also put the draft Money Laundering Regulations 2017 out for consultation, with a view to them becoming law on 26 June.

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