Treasury proposes wide FCA powers over lawyers in anti money laundering role

Treasury consults on FCA powers to regulate lawyers anti money laundering activities

HM Treasury has set out proposals for the powers the Financial Conduct Authority will need when it assumes responsibility for supervising lawyers’ anti money laundering activities. The plans include deeper checks on law firm owners and the ability to bring criminal prosecutions.

The consultation, published by the Treasury, follows the government’s decision in October that the FCA will take over anti money laundering supervision of lawyers, accountants and trust and company service providers from existing regulators such as the Solicitors Regulation Authority.

The Treasury said the FCA will retain existing knowledge of the sectors and that this knowledge will be “embedded into its supervisory model.” It also stated that “a degree of dual regulation” was likely but that work would be undertaken to limit it. The FCA’s work, the Treasury said, “must be consistent with the framework set out in the Legal Services Act 2007.”

The proposals include measures that in some areas go beyond the powers currently exercised by the SRA and other legal regulators.

A new beneficial owner, officer or manager 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, giving it “greater scope to consider an applicant’s suitability for relevant positions.”

The test would allow consideration of whether an applicant had failed to comply with the Money Laundering Regulations 2017, was at higher risk for money laundering or terrorist financing, and whether the person had “adequate skills and experience to perform properly the function in question.” It would be a criminal offence for anyone to act in such a position without having passed the test.

The Treasury said the change reflects the National Risk Assessment’s continued classification of legal services as high risk.

It proposed giving the FCA power to apply to the court for an order requiring the sale of a beneficial owner’s interest in a business where that owner has been convicted of a relevant offence.

While law firms already supervised by a regulator would not be required to re register with the FCA, the Treasury said “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 consultation proposed granting the FCA a broad range of enforcement powers, including civil penalties, suspensions, prohibitions and public censures. The Treasury said this “should support more dissuasive action against non compliance with the MLRs.”

Appeals would be heard by the Upper Tribunal rather than the Solicitors Disciplinary Tribunal.

The proposals also include early intervention powers. These would allow the FCA to issue directions to firms “to require or prohibit specific actions,” or to require a firm to appoint a “skilled person” to review a particular area of concern. The Treasury noted that in 2024 and 2025 the FCA commissioned 12 skilled person reports specifically related to financial crime.

Other existing FCA powers would be extended to lawyers, including the ability to enter and inspect a firm’s premises without a warrant if there were potential breaches of the Money Laundering Regulations. The FCA could also apply to the court for a warrant where entry had been obstructed, where there was a risk of tampering with information, or where there were reasonable grounds to suspect an offence.

The FCA would be able to initiate criminal proceedings for serious breaches of the regulations or for obstruction of investigations, with possible penalties including fines, imprisonment or both.

The consultation said one of the FCA’s tasks will be to “police the perimeter” by identifying unregistered activity within scope of the regulations. It added that HM Treasury had been informed of possible instances of legal activities within scope of the Money Laundering Regulations but outside the remit of existing legal regulators.

Further proposals include giving the FCA power to approve anti money laundering guidance for the legal sector, allowing it to recover its day to day costs through supervision fees, and establishing an information sharing regime with legal regulators.

The Treasury said the reform is intended “to improve the implementation of existing regulation, not create new burdens on businesses.” It said the changes 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.