Michael Ross

The UK Government has confirmed sweeping reforms to how Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) supervision will be handled. Following a 2023 consultation, the government has opted for a new single supervisor model for the professional sector. This means the Financial Conduct Authority (FCA) will take a leading role in overseeing AML compliance for lawyers, accountants, trust and company service providers and others currently supervised by their professional bodies.

At first glance, that might sound like sensible streamlining. Fewer regulators, clearer standards and greater intelligence sharing. In theory, plenty of this has merit, but as always, the devil will be in the detail.

For the legal profession in particular, this shift marks a major change. Currently, the Law Society of Scotland, like its counterparts across the UK, wears two hats: as a representative body for its members and a statutory supervisor for AML compliance. That dual role is complex but well understood. The Society has developed an approach that is rooted in the realities of legal practice.

Under the proposed reforms, that supervisory role will ultimately move to a single UK-wide AML regulator overseen by the FCA, despite the profession’s expectations that a new and consolidated supervisor would be created. In practice, it seems we have been presented with a different outcome to the four put forward during the initial consultation. Nevertheless, solicitors in Scotland will still be members of the Law Society and subject to its conduct regime, but AML supervision will sit elsewhere.

That raises difficult and very practical questions. How will a centralised, finance experienced, data-focused regulator understand or accommodate the realities of legal privilege, client confidentiality, or the nuances of Scottish conveyancing practice? If the FCA doesn’t retain existing LSS staff who have the knowledge and relationships, it’s difficult to see how they would achieve that goal.

A “gold-plated” compliance culture

Too often, compliance becomes a product to be sold rather than a discipline to be practised. This is driving a concerning trend in a “gold-plated” culture, where the right boxes might be ticked and consultants may have templates and tools to share, but ultimately leads to increased costs rather than better outcomes.  

You may have already seen advice for sale on this AML change, but nobody yet knows exactly what this new system will look like in practice. How can they? The government has only announced its decision in principle, so we are still at the start of a long process. There will need to be new legislation, further consultation and inevitably some discussion about scope, funding and implementation.

To put it bluntly – anyone claiming to know the FCA’s eventual supervisory approach can only be speculating. 

What lawyers should be doing right now

So, what should solicitors be doing?

For now, it is a case of continuing to comply fully with the current regulations and the guidance issued by the Law Society of Scotland. Maintain your firm’s existing AML programme and ensure training and risk assessments are up to date.

Crucially, I want to encourage as many lawyers as possible to engage with the newly launched consultation, “Supervision Reform: Duties, Powers, and Accountability”. The profession missed a major opportunity the first time around. Engagement from the legal sector in the 2023 consultation was disappointingly low, and that silence has consequences. The current consultation focuses on the powers, transition plan and practical realities of this new supervisory regime.

It asks 28 important questions, from introducing an additional fee to gatekeeping the appointment of senior leaders via the FCA’s “fit and proper” test.  

If framed correctly, this should be the profession’s chance to shape what comes next: to provide real-world examples, highlight risks, and ensure the final structure is workable for Scottish solicitors. 

We must all continue to work closely with the Law Society of Scotland, our key representative body. It will maintain a voice in discussions with government and regulators, and its guidance will be invaluable.

And finally, beware of the noise. Some people will see this as an opportunity to generate business by sowing uncertainty. Before paying for external advice, ask whether you genuinely need it. If your firm’s AML framework is compliant, well-documented and proportionate, there is no need to overhaul it just because the government has announced reform.  

But the FCA is undoubtedly an unknown quantity for solicitors, so now is the time address existing deficiencies.

The wider context: extending law enforcement by proxy

It’s worth stepping back to look at the bigger picture. These reforms are part of a broader pattern where government and law enforcement increasingly push responsibility for detecting and preventing economic crime onto the private sector.

While that goal is understandable, the cost and administrative burden on law firms, particularly smaller ones, is disproportionate. Large firms can factor in compliance costs, including recruitment of specialist resource. However, for sole practitioners or small high-street conveyancers, it’s a different story. Smaller firms are most likely to be caught off-guard by the changes, due to the number of plates they are spinning, and least able to fund expensive compliance programmes.

That’s why engagement in the consultation is not just a matter of professional interest, it’s a matter of survival for some practices. For all of us, it’s the chance to shape a major change in how we work. 

Michael Ross is a director at Anderson Strathern LLP