Treasury: Seven-week consultation
Deeper checks of law firm owners and the ability to bring criminal prosecutions are among the powers proposed for the Financial Conduct Authority (FCA) once it takes over supervising lawyers’ anti-money laundering (AML) activities.
HM Treasury has issued a consultation [1] on the powers the FCA will need in light of last month’s decision [2] that it will take over AML supervision of lawyers, accountants and trust and company service providers from existing regulators like the Solicitors Regulation Authority (SRA).
It pledged to ensure the FCA retained the existing knowledge of the sectors, which would be “embedded into its supervisory model”.
The government also recognised that “a degree of dual regulation” was likely but would work to limit it. The FCA’s work “must be consistent with the framework set out in the Legal Services Act 2007”.
The proposed powers look in places more extensive than those the SRA and other legal regulators in the UK have.
For example, a new beneficial owner, officer or manager (BOOM) of a law firm currently has to obtain SRA approval by providing a Disclosure and Barring Service check and a five-year address history.
The Treasury proposed that the FCA adopt a broader ‘fit and proper’ test that would give it “greater scope to consider an applicant’s suitability for relevant positions”, such as whether they have consistently failed to comply with the Money Laundering Regulations 2017 (MLR), were higher risk for money laundering or terrorist financing, and have “adequate skills and experience to perform properly the function in question”.
It would be a criminal offence for someone to act as a BOOM without having passed the test.
The move reflected the National Risk Assessment’s continued classification [3] of legal services as high risk.
The consultation proposed giving the FCA the power to apply to the court for an order requiring the sale of a beneficial owner’s interest in a business, where they have been convicted of a relevant offence.
While law firms already supervised by a regulator would not have to re-register with the FCA, “it is proposed that the FCA undertakes fit and proper checks in respect of the professional services firms, recognising that these may not have been conducted previously to the same depth as those typically applied by the FCA”.
The Treasury has proposed giving the FCA a very broad sweep of enforcement powers, including those already used by legal regulators, such as civil penalties, suspensions, prohibitions and public censures.
“This should support more dissuasive action against non-compliance with the MLRs,” it said.
Appeals would be to the Upper Tribunal, rather than the Solicitors Disciplinary Tribunal as now.
Early intervention powers would include allowing the FCA to issue directions to firms “to require or prohibit specific actions”, or to require a firm to appoint a ‘skilled person’ to conduct a review addressing a specific area of concern.
In 2024/25, the FCA commissioned 12 skilled person reports specifically related to financial crime.
Other existing FCA powers to be extended to lawyers included the power to enter and inspect a firm’s premises without a warrant if it believed there was a potential breach of the MLRs.
It would also be able to seek a court-issued warrant where entry has been obstructed, where there was a risk of non-compliance or tampering with required information, or where there were reasonable grounds to suspect an offence under the MLRs was being committed.
The FCA would have the power to initiate criminal proceedings for more severe breaches of the MLRs, or over the obstruction of investigations into breaches, resulting in a fine, imprisonment or both.
Another of the FCA’s tasks would be to “police the perimeter”, by working to identify unregistered activity within scope of the MLRs.
The consultation said: “HM Treasury has been informed that there could be instances of legal activities that are in scope of the MLRs but are not within scope of any existing legal [regulator’s] remit…
“One example could be patent attorneys who participate in the buying and selling of assets on behalf of their clients, and several associations for intellectual property lawyers have jointly issued non-HM Treasury approved guidance on this issue.”
It said that any firms which carried out legal services in scope of the MLRs should be required to register with the FCA, even if they were not currently regulated.
Other proposals in the consultation include:
- The FCA being able to approve AML guidance for the legal sector, without needing HM Treasury authorisation, as the Legal Sector Affinity Group currently does.
- The FCA recovering its day-to-day costs of through fees charged to the firms it supervises;
- The FCA and legal regulators agreeing an information-sharing regime “that minimises requests of firms whilst ensuring that all bodies have the necessary information to meet their objectives effectively”.
- Questioning whether any changes be made to the economic crime objective introduced for legal regulators by the Economic Crime and Corporate Transparency Act.
The Treasury insisted: “This is a reform intended to improve the implementation of existing regulation, not create new burdens on businesses…
“[It] will ensure a more consistent approach for firms, greater information and intelligence-sharing between supervisors and law enforcement to identify and respond to non-compliance, and a more robust approach to enforcement action where required.”
The consultation closes on Christmas Eve.