Hodge: Stamp out the bad apples
The prime minister’s anti-corruption champion has strongly endorsed the decision to move oversight of lawyers’ anti-money laundering (AML) activities to the Financial Conduct Authority (FCA).
Baroness Hodge, appointed to the role by Sir Keir Starmer in late 2024, said it would “create a simpler and more consistent framework that will be better placed to work with law enforcement agencies and will have access to data, allowing a joined-up approach across the professional disciplines”.
Speaking last week in the House of Lords during the second reading of the Financial Services and Markets Bill – the legislation that will effect the change – Baroness Hodge recognised that most professionals were ethical.
But she went on: “At present, the professionals are not adequately supervised and identified, and, too often, they are left free to pursue their highly profitable but immoral and, in some cases, unlawful practices.
“Introducing a robust, efficient and effective supervisory scheme for vigilantly vetting the professionals should have a dramatic impact on the incidence of economic crime.
“Punish and get rid of the bad apples, and wrongdoers will lose their access to advice and support on how to hide or launder money.”
The peer cited a report in March by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) – which currently oversees the activities of 22 legal and accountancy regulators – which found continuing shortcomings in how some were approaching AML.
“Statistics confirm this judgment,” she continued. “The Chartered Institute of Taxation found that 31% of firms it visited were not compliant with anti-money laundering regulation, yet only four were disciplined: three were fined and one was suspended.
“The Council for Licensed Conveyancers imposed no fines at all, despite finding that 62% of firms that it supervised were non-compliant.
“The Solicitors Regulation Authority cancelled the membership of just one professional body in 2023-24, and the fine imposed on Mishcon de Reya in 2022 for multiple breaches of the AML regulations was £232,500; it would have been £5.4m had it been calculated by the rules used by the FCA.
“So, I strongly support the government’s proposal to merge the supervisory bodies into one body that will operate within the FCA.”
Among a series of questions about how the change would work, Baroness Hodge sought assurance that the government would ensure the FCA could access legally privileged documents from law firms where required for regulatory purposes.
However, fellow Labour peer Baroness Bi, the chair of leading City law firm Norton Rose Fulbright, countered that the move would “simply” mean law firms “have another regulator to answer to” – and one with no experience of supervising them.
“I can assure your Lordships that solicitors are not currently an under-regulated profession, and it is not a lack of regulation that contributes to financial crime.
“I suggest that where crimes are being committed, the law is enforced, and where schemes exist that are not currently illegal, they are made so.”
She added: “The fact that the FCA has no experience of professional services firms and will need to develop its expertise is reflected in clause 48, which provides for additional funding for the FCA, exceeding £2.7m a year for more than two years to, ‘cover costs incurred as a result of the preparatory work for the expansion of the FCA’s AML/CTF supervisory responsibilities’.
“May I suggest that we use this money to support legal aid instead, which is sorely needed?”
Another Labour peer, Lord Sikka – an accountant and accountancy academic – said “it was a huge mistake by the previous government to make accountancy, law and other trade associations AML regulators”.
The consolidation in the FCA “is totally justified”, he declared.
HM Treasury minister Lord Stockwood said the move would mean “more consistent and effective supervision and improved collaboration with law enforcement”.
He said the Treasury would shortly publish a response to its consultation on AML supervision that would cover Baroness Hodge’s questions, including access to legally privileged material.
He also stressed that the government intended for the FCA’s AML supervisory activities to be funded on a cost-recovery basis through its fee charges to supervised firms, consistent with the existing funding model.
“I expect the FCA to consult separately on the detailed structure and operating of these fees.”
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