How can law firms prepare for Anti-Money Laundering (AML) supervision?
Anti-Money Laundering (AML) compliance is set to become a far more prominent regulatory focus for law firms, as recent supervision changes have been announced.
From 2027, the Financial Conduct Authority (FCA) will take on the responsibility as the Single Professional Services Supervisor (SPSS) for the legal sector and oversee AML and Counter Terrorism Financing (CTF) compliance.
FCA will move away from the current framework, under which the legal profession is supervised by multiple bodies, including the Solicitors Regulation Authority (SRA).
Why have these changes been made?
The announcement has been made as part of the Government’s strategy to improve the UK’s response to financial crimes.
Reviews by the Financial Action Task Force (FATF) and the Government have highlighted inconsistencies, duplication and weaknesses in the existing supervision, particularly within high-risk sectors, such as legal and professional services.
With the FCA being known for its data-led enforcement approach, law firms may face greater scrutiny and potentially tougher penalties for non-compliance.
What does AML supervision involve?
AML rules are set to prevent criminals from disguising the proceeds of crime through legitimate business.
For law firms, this risk commonly arises in areas such as property transactions, corporate work, trust and estate planning and handling client money.
In the UK, AML rules mainly stem from the Money Laundering Regulations, the Proceeds of Crime Act 2002 and the Terrorism Act 2000.
Firms have a responsibility to conduct customer due diligence, including Know Your Customer (KYC) checks, verifying identities and understanding the source of funds.
Ongoing due diligence is crucial for AML, as suspicious activity can arise after a client relationship has begun.
How can you stay compliant?
Law firms should prepare early with a thorough AML risk assessment of customers, services, products and delivery channels.
You should seek financial support early on with KYC checks and creating a clear audit so that you can be sure the money coming in and out of your firm is clean.
It is important to have a clear, written AML policy that sets out procedures for customer checks, due diligence, ongoing monitoring and reporting suspicious activity.
Appointing a suitably trained Money Laundering Reporting Officer (MLRO) is crucial to ensure all staff receive regular training to stay aware of any risks.
Failure to comply with AML can have serious consequences, including:
- FCA investigations
- Fines
- Criminal liability
- Reputation damage
- Business closure
Breaches do not have to be deliberate to result in enforcement action and your firm should seek financial support immediately if you spot any suspicious activities in your accounts.
How can we help you prepare?
The FCA is likely to place greater emphasis on governance, record-keeping, staff training and the use of data to spot risk patterns.
With a further FATF review scheduled for 2027, law firms should expect AML compliance to be under the spotlight well before the FCA formally assumes its supervisory role.
Firms should seek financial support to help detect and monitor any suspicious financial activity and support them in creating a compliant audit.
As AML supervision becomes more robust, law firms that prepare early are in the best position to operate with confidence and protect their firm.
For further advice on your AML policies and supervision, contact our team today.