Brickell: Real risk
MPs have called on the government to legislate so that the High Court ruling in Carter-Ruck about privilege does not stop regulators tackling money laundering.
Without action, “there is a real risk that serious wrongdoing by solicitors involved in money laundering or abusive litigation practices will remain beyond effective scrutiny”, said Labour MP Phil Brickell, who chairs the all-party parliamentary group on anti-corruption and responsible tax.
He was speaking on the second reading of the Financial Services and Markets Bill, the legislation that will enable the Financial Conduct Authority (FCA) to take over supervision of the anti-money laundering (AML) activities of lawyers, accountants and trust and company services providers from their individual regulators.
The bill has already passed through the House of Lords, where the government said the transition would begin in 2028.
Mr Brickell said he backed the move. “Working in the industry, it always baffled me that anti-money laundering oversight is currently divided among 22 professional body supervisors, many of which are also membership organisations. That creates an inherent conflict of interest – it leads to inconsistent supervision, variable enforcement, fragmented intelligence sharing and uneven suspicious activity reporting.”
But he said September’s High Court ruling in Carter-Ruck – that the Solicitors Regulation Authority does not have the right to require the production of privileged documents from law firms without a waiver from the client – was “a significant problem”.
He went on: “When the bill was in the Lords, ministers confirmed that the FCA will not have powers to compel disclosure of privileged material, yet [the ruling] has exposed serious uncertainty regarding regulators’ ability to access such information when investigating misconduct. That litigation should prompt a rethink.
“If the FCA inherits the same limitations, there is a real risk that serious wrongdoing by solicitors involved in money laundering or abusive litigation practices will remain beyond effective scrutiny.
“The bill should therefore clarify that the regulator can access legally privileged material where necessary for the purposes of anti-money laundering supervision, while continuing to protect clients’ rights and confidentiality.”
Another Labour MP, Joe Powell, said the FCA needed strong enforcement powers to undertake its new role: “[This] means ensuring that the FCA has the right powers to inspect legally privileged material when that is necessary for anti-money laundering supervision.”
He too backed the move in AML supervision, saying the capacity of individual legal and accountancy regulators “simply does not align with the complexity of modern anti-money laundering efforts”.
Mr Powell cautioned that the transition to the new regime would need to be managed. “There is a clear risk that, as responsibilities shift to the FCA in cohorts, some firms will be left behind.
“It would be helpful for the government to provide a reform road map that makes it clear that existing anti-money laundering duties will apply.”
But the SNP’s Kirsty Blackman said she was worried about the loss of specialisation in the move to a single oversight regulator.
“For example, if we put the work of the organisation that supervises lawyers and solicitors in Scotland into the FCA as a regulator that supervises lawyers, that may not be appropriate for the legal system in Scotland, and we may end up with only one person – the one who understands Scottish law – having the knowledge and doing that supervision.
“There, again, we would have a single point of failure, and that is really concerning in a place supervising people who are doing anti-money laundering.”
Lucy Rigby, the economic secretary to the Treasury, did not have time to address these points in winding up the debate, but they will undoubtedly resurface during the bill’s committee stage, when MPs will go through it line by line.
The Supreme Court has yet to decide whether it will hear a leapfrog appeal in the Carter-Ruck case.
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