AML: reshaping the landscape

Although it represents a potentially fundamental shift in the regulatory landscape for Scottish solicitors, the recent Treasury consultation on how the professional body supervisors (“PBSs”) of AML in the UK should be structured seems to have passed by many.

You can read the options on the Government website, but, for the purposes of Scottish legal professionals reading this, they can essentially be read as “stay roughly the same”, “possibly be AML-supervised by the SRA”, or “possibly be AML-supervised by some new UK-wide HMRC-style body”. It was interesting to speak to various researchers and legal professionals and attend round tables on the topic.

There was a general view that the first option (OPBAS+) was most universally palatable, partly because it was the one which actually led to the least change. I suspect (and was occasionally told) that this wasn’t intended as a vote for a good option, but rather for the least bad. When

I thought about the purpose of this consultation, and the resource being put into the process and subsequent analysis, I wondered whether a vote effectively for the status quo just because it was least troublesome was in the spirit of a consultation on change at all.

Consolidation?

There are two similar consolidation options on the table, one being a single legal sector AML PBS within each devolved nation, and the other being a single legal sector PBS for the whole of the UK. The SRA writes: “We believe that the effectiveness of this option would be maximised if we were selected as the consolidated supervisor”. The SRA already supervises 76% of firms across the UK and might ostensibly be better placed to use existing sizable resource to create economies of scale in absorbing further supervision duties.

However, the Law Society of Scotland (“LSS”), perhaps an intrepid little brother to the SRA in PBS terms, of course has a strong view here. The LSS writes in its own response that it believes “that any amalgamation into a single sectoral supervisor may be a regressive step, may undermine our approach and the flexibility we currently have to respond to risks and challenges specific to this jurisdiction”. It also raises the more pertinent point that the entire legal framework through which it supervises Scottish solicitors is distinct and would take quite some unpicking in order to have the SRA enforce any disciplinary proceedings on Scottish solicitors outside of the Solicitors (Scotland) Act 1980.

Both SRA and LSS appear content that consolidation may be a positive (and probably likely) outcome. It’s the extent of consolidation in which the discomfort lies.

Nuclear option

The more nuclear option tabled is the creation of a new UK-wide supervisor for AML, either as a single professional services supervisor (“SPSS”) or as a whole-country, all-businesses supervisor – a single AML supervisor (“SAS”). Either would likely be a new structure within the public sector, rather than a branch of any private or membership body. This would naturally be a huge upheaval to AML supervision in practical terms alone, with the transfer of data, knowledge, staffing, legislative elements etc all to be considered. But the positives, should they materialise, are undeniably attractive too – enhanced coordination and use of data, economies of scale, coordinated intelligence and security clearances, increased transparency, consistency of approach. It’s also notable that the Treasury’s own paper on the consultation highlighted that the only two G20 countries which were regarded as having “substantially effective” AML regimes were Canada and Saudi Arabia; both use government/public sector bodies to supervise their non-financial sector businesses.

A recurring theme from both PBSs mentioned above, in response to the notion of a new UK-wide public body AML supervisor, is that we would lose an abundance of knowledge, lose deep-level expertise forged in the nuanced risks and operations of law firms, and collaborative relationships built between the supervisors and the supervised over years would all be wasted. It’s irresistible to compare those vested-interest responses to recent independent research carried out by the Royal United Services Institute, which found over the course of hours of interviews that there is a “lack of trust across the system”, that “There is no sense that everyone is ‘on the same side’ or has common objectives”, and that “There is a perception among firms that supervisors do not have the necessary experience of the sector”.

Whoever is analysing the responses and planning for the future has their work cut out. The responses are a mixed bag of self-preservation and good points all vying for attention. Almost all of the options tabled will make somebody unhappy; some of them will lead to existential changes to current PBSs; and some have substantial theoretical positives attached which would take years to effect and may never materialise at all. God willing, though, there will always be someone to pontificate about it all briefly in a magazine.