‘Rethink this expensive AML change’ — Law Society of Scotland condemns Treasury’s overhaul of regulation

The Law Society of Scotland has condemned the UK Governments move to overhaul anti-money laundering (AML) enforcement and hand sole authority to another regulator.

The Government has confirmed that the Financial Conduct Authority will take over as the sole AML regulator for all professional services firms, including legal and accounting practices, in the future.

This move, which strips the Society of it’s AML function, has been branded complex and costly by the membership body.

Chancellor Rachel Reeves says the change is part of a ‘blitz on business bureaucracy’.

In 2023 HM Treasury consulted on four different AML supervision models. The Law Society of Scotland strongly opposed the option which has now ultimately been adopted.

The change will not happen immediately, but the AML supervisory responsibilities currently held by the Law Society of Scotland will be discontinued in time.

David Gordon, the Convener of the Law Society of Scotland’s Regulatory Committee, said: “We are frustrated and disappointed with this decision, which imposes a finance sector focused AML regulator on law firms and all other professional services. It also flies in the face of other changes made here in Scotland which actually granted the Law Society new and strengthened regulatory powers over law firms.

“The Government has made this decision despite acknowledging our strong record of maintaining high standards in our role as an AML supervisory body, thanks to our detailed understanding of the Scottish legal services sector. We do not believe the FCA will be able to replicate our knowledge of Scotland’s legal sector, let alone improve oversight.

“Law firms in Scotland now face the prospect of dealing with multiple regulators, including one with little experience of legal businesses. This will inevitably add to the bureaucratic burden on them at a time when the Government says it is prioritising economic growth and business competitiveness.

“It is difficult to see how a body overseeing banks and other finance sector businesses with thousands of staff can also provide effective enforcement and support for single-solicitor law firms. This will be especially the case if FCA resources remain so heavily concentrated in London.

“We would urge the Government to reconsider this expensive and potentially counterproductive change. It is consumers of legal services who ultimately pay the price for inefficient and ineffective regulation.”

Mark Evans, president of the Law Society of England and Wales, added: “It is vital that representative bodies continue to play a central role in shaping and contributing to legal sector-wide guidance.

“Whilst we see significant challenges and would not have chosen this route, we stand ready to work with the government and the FCA as it implements the SPSS model.”

What is the Society’s current role?

The Law Society of Scotland is a named regulator under Schedule 1 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) alongside bodies including the societies of England, Wales and Northern Ireland as well as various chartered accountancy bodies and the Faculty of Advocates.

How has the FCA responded?

Steve Smart, FCA executive director lead for fighting financial crime, said: "We recognise the benefits of an improved regime for anti-money laundering supervision. These changes will simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime. 

"The FCA will engage Professional Body Supervisors including the Law Society of Scotland as we work together to equip the UK to better fight financial crime. We can draw on our extensive expertise in this area to facilitate a smooth transition and ensure effective regulation.

"The FCA will be supervising relevant Scottish legal firms for anti-money laundering and counter-terrorism financing purposes only and using a risk-based approach."

Smart added: "We already operate across the UK and we anticipate having a significant presence for this function in our offices outside of London. The FCA has a long-standing presence in Scotland, including an office in Edinburgh."

What happens next?

The implementation of the decision to make the FCA the sole AML regulator will require primary legislation passed by both Houses of Parliament, delivery of an execution plan and a transition period.

As a result, the Law Society of Scotland suggests the ultimate transfer of responsibilities is not likely to take effect ‘for a considerable period’.

The Society will continue to serve as the designated AML supervisor for the legal sector in Scotland.