Challenge for professional services sector as FCA gains anti-money laundering oversight

The move (42-page / 482KB PDF), designed to simplify the current structure of oversight for the sector, has been put forward by the UK Treasury after a consultation exercise, and could lead to radical changes in the regulation of the professional services sector.

Currently, the AML/CTF supervisory system comprises three public sector bodies – the FCA, the Gambling Commission, and His Majesty’s Revenue and Customs (HMRC) – alongside 22 professional bodies supervising companies in the legal and accountancy sectors.

These professional supervisors make sure firms comply with regulations on the prevention of money laundering and terrorist financing and take enforcement action where needed.

Under the new proposals, all AML/CTF supervision will fall under the auspices of the FCA as a single professional services supervisor (SPSS) after a previous review found “continued weaknesses” in the quality of AML/CTF supervision. Bodies such as the Solicitors Regulation Authority will lose their enforcement powers and oversight responsibilities in the transition.

The FCA has shown a robust approach to pursuing anti-money laundering enforcement in the past, and Nicholas Kamlish, financial crime regulation specialist at Pinsent Masons, warned the new structure could challenge many in the sector.

“These changes may lead to a ‘culture shock’ for some professional services firms,” he said.

“It would be prudent for firms expecting to be supervised by the FCA to invest more heavily in AML/CTF frameworks and staff training, due to the FCA likely taking a more intensive and exacting approach to supervision than the current regulators.

“In particular, firms may see the FCA acting faster where it detects potential harm to markets and consumers, as shown by its recent intervention, directed at law firms involved in motor finance claims activities, on information requirements about exit fees under the Consumer Rights Act.”

The UK Treasury, which has driven the changes, said the FCA would be working alongside other regulators and the professional services industry, with new powers being provided to work independently of the Treasury.

As many as 60,000 companies could be impacted by the move, although a timetable has not been confirmed, with legislation and a transition plan still pending. A separate consultation on the powers the FCA should have will be published in November.

The FCA said it welcomed the move as it would “simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime”

'The new regime will create enhanced opportunities for collaboration with key partners, including law enforcement, to tackle money laundering,” Steve Smart, joint executive director of enforcement and market oversight at the FCA, added.

Sébastien Ferrière, an expert in financial services regulation at Pinsent Masons, said: “The FCA’s skilled person review powers, and its ability to agree or impose requirements or directions and impose unlimited fines, are currently limited to certain types of regulated financial services firms”.

“Nevertheless, it will be interesting to see if equivalent intervention and enforcement powers are introduced for use against professional service businesses following changes to the MLRs and the HM Treasury consultation in November, or if the FCA will instead benefit from the same AML/CTF supervisory powers the SRA and other professional services bodies previously had.”