More than two-years on from HM Treasury’s consultation on reforming anti-money laundering (AML) and counter terrorism financing (CTF) supervisory regimes, the government has published its proposals.

The Financial Conduct Authority (FCA) is to be given responsibility for supervising all firms across the accountancy and legal sectors for AML/CTF. The timescales for the change aren't clear, as government will need to pass primary legislation, but the move means that the FCA will be supervising an additional 60,000 entities on top of the 17,000 it already supervises. 

Currently this work is undertaken by 22 professional body supervisors (PBSs) who supervise the AML and CTF compliance of legal and accountancy firms. ICAEW is the largest accountancy PBS, supervising around 10,000 firms. 

Reacting to the announcement, Parjinder Basra, Chair of the ICAEW Regulatory Board, spoke of ICAEW’s disappointment in the decision and the impact on the organisations being supervised.

“This decision will only increase the regulatory burden and costs to firms, making business growth more challenging, while creating greater confusion within the regulatory framework and leading to even more fragmentation in the way key information is held and maintained about the activities of professional services firms," he said.

“We intend to continue to engage with ministers and Treasury to ensure that all of the ramifications of this decision are understood, and to suggest alternative ways forward.”

2022 review recommended reform

In 2022 HM Treasury published a review of the UK’s AML/CTF regulatory and supervisory regime which concluded that while there had been continued improvement to the regime, “some weaknesses in supervision may need to be addressed through structural reform”.

The following summer the Conservative government launched a consultation on four potential models for the future AML supervisory regime in the UK: 

1. Providing enhanced powers to the existing Office for Professional Body AML Supervision (OPBAS).
2. Consolidation of PBS to either: 
   - one accountancy sector supervisor and one legal sector supervisor with UK-wide remits, or
   - one accountancy sector supervisor and one legal sector supervisor for each jurisdiction: England and Wales, Scotland, and Northern Ireland.
3. Creating a single professional services supervisor – overseeing all legal and accountancy sector firms.
4. Creating a single AML supervisor – overseeing all AML/CTF including those currently supervised by the FCA, HMRC and the Gambling Commission.

ICAEW responded to the consultation, outlining key risks posed by all options, but suggesting that the first approach would ensure valuable expertise was retained and would be the swiftest to implement.

The government announcement confirms that is has opted for the third model, which ICAEW warned in 2023 posed “significant feasibility challenges”, as well as a high risk of losing the expertise and knowledge needed to effectively perform supervision. 

In its consultation response (ICAEW Rep 97/23), ICAEW said: ““We believe that supervisory effectiveness will reduce significantly in the short-medium term… given the size of the supervised population, it will take many years for a single professional services supervisor body to reach equivalent levels of supervisory effectiveness achieved by the PBSs.”