The government’s decision to transfer anti-money laundering and counter-terrorist financing supervision for professional services firms to the Financial Conduct Authority is a significant change for conveyancing firms, but perhaps the most important point at this stage is to be clear about what is, and is not, being proposed. Beth Rudolf, director of delivery at the Conveyancing Association, examines the current position.
The FCA is likely to take over anti-money laundering (AML) and counter-terrorist financing (CTF) supervision – currently undertaken by professional body supervisors – rather than simply being added as another AML regulator on top of the existing regime. Bodies such as the Solicitors Regulation Authority (SRA) and Council for Licensed Conveyancers (CLC) will continue to regulate firms in relation to their wider professional responsibilities.
It is important to stress this change has not happened yet. While government has decided on the FCA model, implementation still requires primary legislation, with further detail to be set through secondary legislation and the transition arrangements still being worked through.
There is therefore both time and a need for the conveyancing sector to engage with the detail before the new supervisory regime takes effect.
On paper, that division might appear relatively straightforward, but the reality of running a conveyancing firm, and dealing with individual property transactions, is unlikely to always fit quite so neatly into separate regulatory boxes.
Where do the responsibilities meet?
This is where we believe there are legitimate questions which need answering well before firms begin moving across to FCA supervision, with the government currently expecting the first businesses to make that transition before the end of 2028.
An issue concerning source of funds, for example, might clearly raise an AML question, but the circumstances surrounding it could also raise questions about professional conduct, risk management or other duties which remain within the remit of the firm’s existing legal regulator.
Similarly, AML risks do not exist separately from wider economic crime issues such as fraud, sanctions breaches or tax evasion, and legal regulators will continue to have responsibilities in these areas after direct AML supervision has moved elsewhere.
Potential grey areas
The question for conveyancing firms is therefore not simply who will supervise their AML compliance, because we know the answer to that will ultimately be the FCA, but what happens when an issue potentially falls within the responsibilities of both regulators.
Could one set of circumstances result in information requests from both bodies, could an FCA review lead to a referral to the SRA or CLC, and could something identified by a legal regulator similarly be referred to the FCA?
Government has already recognised concerns about regulatory overlap and ‘grey areas’ and has proposed co-operation and information-sharing arrangements intended to minimise duplication, which is welcome, but firms will understandably want considerably more detail about how this will work in practice.
What will firms actually have to do?
There are other practical questions, including how FCA registration will operate, what information firms will be required to provide and how existing regulatory checks will be treated under the new arrangements.
One example is the proposed fit and proper requirements, where there is clearly potential for duplication if individuals who have already satisfied checks through their existing legal regulator are required to go through substantially similar processes again.
The intention appears to be that existing assessments should be capable of being relied upon where they meet the necessary requirements, but this is precisely the sort of detail firms need confirmed before they can understand the administrative impact of the change.
There is also the wider question of the FCA’s supervisory approach and whether firms will need to change systems, reporting, training or compliance processes to satisfy a regulator which has traditionally supervised very different types of businesses.
What will all this cost?
Cost is another area where greater clarity will be needed, because the FCA’s new supervisory responsibilities will have to be funded and firms can expect an FCA fee structure to be introduced.
At the same time, conveyancing firms will continue to pay their existing legal regulator because the SRA, CLC and others will retain significant responsibilities for regulating them.
If part of the work currently undertaken by those regulators is being transferred to the FCA, firms will reasonably ask whether their existing regulatory costs will reduce accordingly, or whether an FCA charge will effectively become an additional cost? I’ll leave you to decide what is more likely to happen.
There may also be indirect costs associated with new systems, staff training, additional reporting and management time, particularly if firms find themselves having to satisfy different requirements from two regulators.
Getting clarity before the change
None of this means we should assume conveyancing firms are heading towards duplicate AML regulation, because that is not what government says it intends to create, but neither should we assume the boundary between the two regimes will work perfectly without careful thought.
The CA intends to engage with the FCA and the relevant legal regulators to understand how these arrangements will work for our conveyancing firm members, particularly where responsibilities meet, how duplicate requests or checks will be avoided, and what the overall cost will be for regulated practices? And how will it work for those conveyancers already registered with the FCA for permitted insurance activities so they can provide indemnity insurance policies?
There is time to get this right before the first firms move across, and we want to use that time to make sure the practical implications are properly understood and any unnecessary duplication is identified before, rather than after, the new supervisory regime takes effect; this is after all supposed to be a single professional services supervisor model.
For conveyancers, that should ultimately be the test of the new system: not simply whether regulators can draw a clear dividing line between their responsibilities on paper, but whether firms themselves know which regulator they are accountable to, for what, and whether they are being asked to provide the same evidence, answer the same questions or meet essentially the same regulatory cost twice.
About the author
Beth Rudolf is director of delivery at The Conveyancing Association. After starting working life as an estate agent, she became a licensed conveyancer and now works with the Conveyancing Association to improve the home-moving process for the consumer.
The views expressed in this article are those of the author and not necessarily those of Today’s Conveyancer.
