HM Treasury confirmed the UK government’s plans for one of the most significant overhauls of the country’s AML regime in decades with its intention to make the FCA the single AML/CTF supervisor for law firms, accountancy practices and trust and company service providers (TCSPs).
If implemented, the reforms would bring an end to the current system under which more than 20 professional body supervisors oversee AML compliance across different sectors. For law firms, this would mean AML supervision moving away from the SRA, while accountancy firms and TCSPs would also see their existing supervisory arrangements replaced by FCA oversight.
But firms should be cautious about treating the changes as a done deal.
While the treasury has set out its preferred model and published detailed proposals for implementation, the reforms remain subject to legislation, consultation and political realities that could significantly alter the timeline or even the outcome itself.
Why the government wants change
The reforms emerge from long-standing concerns about the effectiveness of the UK’s AML supervisory framework.
Successive government reviews have highlighted inconsistencies in how AML rules are supervised across professional sectors. Ministers have argued that the current system, which relies on multiple professional body supervisors, creates varying standards of oversight and can make it difficult to identify emerging financial crime risks across the wider economy.
The government believes a single supervisor would create greater consistency, improve intelligence-sharing and allow resources to be focused more effectively on firms and sectors considered most vulnerable to money laundering and terrorist financing.
Officials have also pointed to the FCA’s experience supervising financial institutions and its increasingly data-driven approach to identifying and managing risk. The Treasury’s view is that bringing professional services firms under a single supervisor will strengthen the UK’s overall response to economic crime.
Law firms, accountancy firms and TCSPs have all been identified as sectors that can be exploited by criminals seeking to move, conceal or legitimise illicit funds, particularly through property transactions, corporate structures, trusts and international financial arrangements.
The legal sector remains unconvinced
While the Treasury sees consolidation as a solution, many within the legal profession remain unconvinced that replacing sector-specific supervision with FCA oversight will deliver better outcomes.
The Law Society and other legal sector stakeholders have consistently warned that AML supervision cannot be separated entirely from the realities of legal practice.
Solicitors operate within a framework that includes legal professional privilege, strict confidentiality obligations and professional duties that differ significantly from those found in the financial services sector. Critics of the reforms argue that there is a risk these nuances could be lost under a regulator whose expertise has historically focused on banks, insurers and investment firms.
There are also concerns that the government has yet to demonstrate that the scale of the reforms is proportionate to the risks identified within the legal sector.
Some industry representatives have questioned whether creating a new supervisory structure will genuinely improve AML outcomes or simply increase costs and administrative burdens for firms already subject to extensive regulation.
Will law firms have to respond to two regulators?
One of the most significant practical consequences of the reforms is that they do not create a single regulator for law firms.
Instead, they create a single AML supervisor.
The FCA would take responsibility for AML/CTF supervision, while the SRA would continue regulating professional conduct, client money, practising certificates and broader regulatory obligations.
For firms, this means the possibility of operating within a dual-regulator environment.
Although the government has promised information-sharing arrangements and cooperation between regulators, it has not established clear statutory rules governing how overlapping investigations or enforcement actions would be handled. This has prompted concerns that firms could face increased regulatory complexity rather than simplification.
The risk of duplicated scrutiny or differing regulatory expectations remains one of the biggest unanswered questions in the proposals.
Will accountants face a data-driven future?
For accountancy firms, the reforms are likely to bring more emphasis on evidence-based compliance and governance.
The FCA’s supervisory model relies heavily on data, risk analysis and demonstrable outcomes. Firms may find themselves under greater pressure to prove that AML controls are operating effectively in practice rather than simply maintaining policies and procedures on paper.
This could mean increased scrutiny of client risk assessments, monitoring systems, governance arrangements and management oversight.
Many accountancy firms already operate strong AML programmes. However, smaller practices may face pressure to invest in technology, reporting systems and compliance infrastructure capable of meeting a more intensive supervisory approach.
The shift may be particularly noticeable for firms that have historically experienced less frequent engagement from their AML supervisors.
TCSPs could become an early focus for FCA
Trust and company service providers are widely expected to be among the sectors most affected by the reforms.
The government has repeatedly highlighted concerns about the misuse of corporate structures, trusts and beneficial ownership arrangements by criminals seeking to obscure the origins of illicit wealth.
As a result, TCSPs could find themselves at the forefront of the FCA’s risk-based supervisory strategy.
Firms involved in company formation, nominee services, trust administration and international corporate structuring should expect close scrutiny of customer due diligence processes, beneficial ownership verification, ongoing monitoring arrangements and suspicious activity reporting procedures.
The FCA’s ability to concentrate resources on higher-risk sectors means many TCSPs may experience a level of supervisory attention that exceeds anything seen under the current regime.
Are we headed towards new registration requirements?
The government has confirmed that firms carrying out regulated activities under the Money Laundering Regulations will need to be registered with the FCA.
What remains unclear is how that transition will work in practice.
Ministers have expressed a desire to minimise duplication but they have not committed to automatically recognising existing registrations or approvals granted by current supervisors.
As a result, firms may face a fresh registration process as part of the transition.
The proposals also envisage extending fit and proper testing requirements to legal and accountancy firms. This could require partners, directors, beneficial owners, compliance officers and money laundering reporting officers to undergo FCA assessments before holding certain positions.
While designed to strengthen governance and accountability, these requirements could introduce additional administrative burdens and potentially delay key appointments.
The cost question
Perhaps the greatest concern for many firms is the issue of cost.
The FCA’s supervisory activities will operate on a full-cost recovery basis, yet the government has not published a fee structure or provided assurances that new FCA charges will be offset by reductions elsewhere.
For law firms, accounting practices and TCSPs already grappling with increasing compliance costs, this creates uncertainty.
The FCA will also receive powers commonly associated with financial services supervision, including the ability to appoint skilled persons to review a firm’s AML arrangements. Such reviews can be costly and are generally paid for by the firm under investigation.
Until further consultations take place, businesses are effectively being asked to prepare for a new regulatory framework without knowing its ultimate financial impact.
The bigger picture: legislative and political uncertainty
Perhaps the most overlooked aspect of the announcement is that, despite the confirmation from HM Treasury, these reforms are still some distance from becoming law.
The proposals will require primary legislation, followed by secondary legislation, further consultation and a detailed implementation framework. In practice, that means the FCA model is not yet operational policy, but a direction of travel that must still pass through a lengthy and complex legislative process.
Major regulatory reforms of this scale are rarely static. Provisions can be amended during parliamentary scrutiny, implementation timelines can shift, and policy priorities can evolve as legislation progresses.
The wider political and legislative environment, mainly Prime Minister Keir Starmer’s recent announcement of his resignation, also introduces an additional layer of uncertainty. Large-scale regulatory reforms can of course be influenced by this kind of political development.
Against that backdrop, firms should be careful not to assume that the model announced by the Treasury will necessarily emerge in its current form, or on the timetable currently implied.
What should firms do now
The underlying Money Laundering Regulations are not changing. Firms that already operate effective, risk-based AML programmes do not need to redesign their frameworks simply because a different supervisor may eventually take over.
However, firms should anticipate increasing expectations around governance, record-keeping, risk assessments and the ability to evidence compliance.
Law firms, accountancy practices and TCSPs would be smart to ensure beneficial ownership information, governance records, AML documentation and risk assessment processes are accurate, current and readily accessible.
Those preparations will be valuable regardless of whether the FCA ultimately becomes the sector’s supervisor.
A major reform but not yet a certainty
There is little doubt that the government’s proposals represent the most ambitious attempt to reshape AML supervision in the professional services sector for a generation.
If implemented, the reforms would fundamentally change how law firms, accountancy practices and trust and company service providers interact with their AML regulator.
Yet despite the Treasury’s commitment, firms should resist assuming that FCA supervision is inevitable.
The legislative process has only just begun, significant industry concerns remain unresolved and key details have been deferred to future consultations. The timetable, final design and even the ultimate fate of the reforms remain far less certain than many of the headlines suggest.
