Key reforms in AML/CTF supervision

The government’s proposed reforms are not only about tightening compliance practices but also about modernising how businesses across various sectors handle financial crime risks.

Here’s a breakdown of the key changes: 

1. FCA to provide AML/CTF supervision to law firms, accountancy practices, and trust and company service providers (TCSPs)

Historically, a variety of professional bodies such as the Solicitors Regulation Authority (SRA) and the Institute of Chartered Accountants in England and Wales’s (ICAEW) AML Supervisory Body have been engaged as the AML/CTF supervisor of law and accountancy practices respectively, while TCSPs have been overseen by a variety of professional and statutory bodies.

Under the proposed reforms, the FCA will take on responsibility for supervising these sectors from an AML/CTF perspective. This shift aims to ensure more consistent, robust, and transparent oversight.

2. Risk-based supervision approach 

The consultation also proposes a risk-based approach to supervision, whereby the FCA will focus its resources on high-risk sectors, where the risk of financial crime is most pronounced. By doing so, regulators can allocate resources more efficiently and ensure that businesses operating in higher-risk areas face heightened scrutiny. For firms in these sectors, it may mean more frequent touch points, and a need for a more comprehensive financial crime compliance framework. 

3. Improved data sharing and collaboration 

Another crucial element of the reforms is the emphasis on enhanced data sharing and collaboration between the public and private sectors. The aim is to enable firms under the new supervision of the FCA to respond faster to emerging threats and facilitate more effective identification of suspicious activities. By improving how data flows between businesses and regulatory bodies, the government aims to create a more integrated and proactive approach to tackling financial crime. 

4. Strengthened governance and accountability 

The reforms will also place a greater emphasis on governance and accountability within regulated entities. The FCA will expect senior management to be directly involved in compliance, with clear lines of accountability, a properly defined 3 line of defence (3LoD) model and a focus on embedding a compliance culture throughout the organisation. Firms that fail to demonstrate proper governance and risk management could face greater regulatory scrutiny and penalties. 

Why these changes matter 

The decision to place law firms, accountancy practices, and TCSPs under the FCA’s supervision reflects a broader effort to close regulatory gaps and ensure that all entities involved in financial services are held to high standards of compliance. By consolidating oversight under one regulator, the government aims to create a more consistent approach to tackling financial crime. 

This shift to FCA supervision is particularly noteworthy for TCSPs given the high-risk nature of their services (such as company formations, trustee services, and the management of trusts and corporate structures) that have been increasingly targeted by criminals to facilitate illicit financial activities. These firms must now adopt more robust compliance frameworks to align with FCA expectations and to achieve this it will likely involve more frequent audits, greater transparency with their supervisor, and a focus on strengthening risk-based controls to prevent financial crime. 

For businesses in other sectors, these changes represent a clear signal that the UK government is serious about tackling financial crime and will hold all regulated sectors to increasingly high standards. Keeping up with these reforms will require businesses to reassess their financial crime policies, procedures, risk assessments, and governance structure to stay ahead of exploitative criminals. 

Preparing for the upcoming changes 

Businesses impacted by these reforms must proactively reassess their compliance strategy to ensure they are ready for these changes. Here are some questions you should be asking: 

• What steps has your firm taken to conduct a gap analysis against regulatory requirements, and how would you describe your current alignment with FCA expectations? 

• How have you reviewed and enhanced your AML/CTF policies, procedures, systems, and controls to ensure they reflect FCA expectations? 

• How is your firm’s senior management involved in compliance efforts, and what governance structures, roles, and responsibilities are in place to support effective oversight? 

• How have you reviewed and updated your business-wide risk assessment to ensure it accurately captures your business model, customer base, and exposure to potential financial crime risks? 

• What plans have you made to conduct a mock FCA visit to test your firm’s readiness and ability to respond effectively to potential supervisory questions from the FCA? 

At Avyse, we have helped a diverse array of firms from banks, asset managers, FinTechs and payment providers and can translate regulatory expectations from the FCA to real-life operational changes to firms of all sizes, product offerings and customer bases on their compliance journey.

Whether you’re a law firm, accountancy practice, TCSP, or operate in any other regulated sector, our team of experts can guide you through these changes and help you ensure compliance with the new regulatory framework - get in touch to learn more: contact@avyse.co.uk