The Solicitors Disciplinary Tribunal (SDT) has raised serious concerns about the government’s proposals to overhaul anti-money laundering (AML) supervision in the legal sector. The warning comes as plans emerge for the Financial Conduct Authority (FCA) to take on AML regulation responsibilities currently held by the Solicitors Regulation Authority (SRA).
What’s Changing?
Under the proposed model, the FCA would become the primary AML supervisor for thousands of law firms. While intended to streamline oversight, the SDT cautions that this could lead to ‘double jeopardy’—where firms face overlapping investigations by both the FCA and SRA for the same conduct.
Key Risks Identified
- Duplicate Investigations: Without coordination, firms could be subject to duplicate fact-finding, creating delays and inconsistent outcomes.
- Regulatory Overlap: The SDT warns of regulatory friction, with unclear boundaries between AML breaches and professional standards issues.
- Confidentiality Concerns: The tribunal highlights risks to legal privilege and client confidentiality under any new regime.
- Operational Burden: Law firms may need to register and interact with both regulators, increasing compliance costs and complexity.
SDT Recommendations
- Establish clear referral mechanisms and information-sharing protocols between the FCA and SRA.
- Implement a binding duty to share evidence promptly to avoid delays and protect fairness.
- Design the regime to minimise unintended consequences, such as regulatory duplication and inefficiency.
Industry Reaction
The legal profession has expressed scepticism about the FCA’s ability to manage AML supervision effectively. While the SDT does not oppose reform in principle, it stresses that changes must be proportionate, coordinated, and transparent to avoid undermining the integrity of disciplinary processes.
As of April last year, 5,683 law firms were within the scope of AML regulations, required to maintain risk assessments, policies, and procedures. Any shift in supervisory responsibility will have significant implications for compliance frameworks across the sector.
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