Posted by Yazad Bajina, director at Legal Futures Associate Checkboard
Bajina: Fundamental facts will not change under FCA
In October, HM Treasury announced that anti-money laundering (AML) enforcement powers for the legal sector would pass from the Solicitors Regulation Authority (SRA) to the Financial Conduct Authority (FCA).
The announcement was received with a mix of relief and caution. While SRA fines have been climbing over recent years, many in the profession aren’t confident they will get any relief from a body used to dealing with a highly regulated industry.
So, will the FCA be a better steward for the legal profession than the SRA?
For me, the new regulatory body doesn’t really change the facts on the ground: money laundering is a major issue, and law firms will still need to prepare a robust approach to AML.
The profession shouldn’t feel AML is any less of a priority just because a team with a new acronym is conducting the audit.
Getting tough?
Money laundering represents a major challenge for the UK economy, with as much as £100bn of criminal profts laundered every year.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 have firmly established a tough approach to AML for any industry at risk of exploitation – and there seems to be no indication that these broad requirements are set to become weaker.
But many firms have been blanching at the increasing regulatory burden and ever-higher fines imposed by the SRA. The change in regulator, which comes as the government looks to balance tough regulations with a more flexible approach to AML demands, could be seen as an attempt to lighten this burden.
However, the FCA might not be any different. It’s a body used to dealing with financial services, a highly regulated industry in which money laundering is a major concern.
Indeed, the FCA has been afraid to fine neither some of the UK’s biggest and most influential financial institutions, nor disruptive neobanks.
Earlier this year, it fined Barclays Bank £42m for two separate AML breaches, while neobank Monzo received a £21m charge for failing to implement adequate customer onboarding.
These amounts are enormous compared to the SRA’s charges, which level out in the tens of thousands.
It might signal an organisation prepared to get tough on the legal sector.
Don’t let AML slip
We can’t yet know how the change in regulator will affect AML enforcement.
With the SRA still responsible for much of legal oversight once it happens, some firms are expressing concern that regulatory overlap between the two bodies will make their jobs harder.
There is also the worry that the FCA simply doesn’t have enough institutional knowledge of the legal sector, raising concerns that enforcement could be misplaced or uneven.
But to me, it is unlikely the fundamental facts will change: firms will still need to perform AML, ‘know your client’, and identity checks; they will need to send reports to the auditors; and they will still face fines and recriminations for non-compliance.
Money laundering is still a threat, and clients will still want to know they’re not being exposed to any risk.
Whatever happens, law firms should still treat AML compliance as an important step in client onboarding.
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