The proposed transfer of anti-money laundering (AML) supervision from the Solicitors Regulation Authority (SRA) and other professional body supervisors to the Financial Conduct Authority (FCA) represents one of the most significant regulatory developments facing the legal sector in decades.

Under the proposals, the SRA would retain responsibility for professional conduct, ethics and client care, while AML and counter-terrorist financing (CTF) supervision would move to the FCA. And, while the transition remains subject to legislation and implementation plans, firms should not wait until the new regime is finalised before considering what it could mean for their compliance framework.

To help firms understand what the changes could mean in practice, Legal Eye has produced a new FCA Supervision of AML: Preparation Guide, exploring the direction of travel and the practical steps firms can take now.

A shift towards evidencing effectiveness

While both the SRA and FCA adopt risk-based approaches, the FCA has historically placed greater emphasis on data, management information and evidencing that controls are operating effectively.

The focus is often less on whether policies exist and more on whether firms can evidence that those policies are delivering the intended outcomes.

In practical terms, firms may increasingly be expected to demonstrate:

• How risks are identified and monitored
• Whether AML controls are operating consistently across the firm
• What management information is available to senior leadership
• How compliance trends, issues and emerging risks are tracked and addressed
• Whether governance arrangements provide effective oversight.

The move to FCA supervision could represent a shift from “show us your procedures” to “show us that your controls work”.

Different supervision does not necessarily mean less supervision

Some firms may take comfort from the fact that FCA-supervised firms have historically received fewer routine inspections than firms regulated by the SRA.

However, this should not be interpreted as a lighter-touch approach.

The FCA is well known for its use of data, analytics and risk indicators to identify firms that warrant closer scrutiny. Where concerns are identified, regulatory engagement can be extensive and highly focused.

This may be particularly relevant for the legal sector. The UK’s National Risk Assessment continues to classify legal services as a high-risk sector for money laundering. If the FCA adopts a different view of sector risk than that historically applied within the legal profession, supervisory expectations could evolve significantly.

What should firms be reviewing now?

While the final structure of the proposed regime is still developing, there are several areas firms can assess now to strengthen their AML framework.

Firm-wide risk assessments

A robust firm-wide risk assessment remains the foundation of an effective AML programme. Firms should ensure that their assessment accurately reflects their client base, services, delivery channels and emerging risks, while clearly documenting how those risks are managed and mitigated.

Policies and procedures

AML policies and procedures should reflect how compliance is delivered in practice. Regulators increasingly expect firms to demonstrate that documented processes are embedded within day-to-day operations rather than existing solely as written policies.

Independent audit and monitoring

Independent scrutiny is becoming increasingly important. Firms should consider whether their current arrangements for Regulation 21 audits, compliance monitoring and file reviews provide sufficient evidence that controls are operating effectively.

Management information and reporting

The ability to extract meaningful compliance data is likely to become increasingly valuable.

Firms should consider whether they can readily report on areas such as:

• Client and matter risk assessments
• Source of funds and source of wealth enquiries
• AML file review findings
• Breaches and remediation activity
• Suspicious activity reporting trends
• Training completion and competency.

The firms best placed for future regulatory scrutiny are likely to be those that can demonstrate compliance through evidence rather than assumption.

A strategic opportunity for firms

While much of the discussion understandably focuses on regulatory risk, there may also be wider benefits to strengthening AML governance now.

Investing in compliance infrastructure, management information and oversight arrangements can support not only regulatory compliance but also insurer requirements, lender panel expectations and broader risk management objectives.

While there is still uncertainty around the final shape and timing of any transition, firms do not need to wait to start preparing. At Legal Eye, we help compliance teams understand the likely direction of travel, assess their current arrangements and identify practical steps they can take now.

This is not simply about preparing for a new regulator. It is an opportunity for firms to take a fresh look at their compliance arrangements and ensure they are fit for the future.

Download the FCA Supervision of AML: Preparation Guide

To help firms understand the likely direction of travel and assess their readiness, Legal Eye has produced a practical FCA Supervision of AML: Preparation Guide.

Our guide explores:

• How FCA AML supervision may differ from the current model
• The likely areas of regulatory focus
• What firms should be reviewing now
• Practical steps for COLPs, COFAs, MLROs and senior management teams
• A readiness checklist and action plan for the next 6–12 months.

Whether implementation takes two years or five, firms that begin preparing now will be in a stronger position to respond to future regulatory expectations.

Download your copy of the FCA Supervision of AML: Preparation Guide.