FCA to start supervising lawyers' anti-money laundering efforts from 2028

FCA to start supervising lawyers' anti-money laundering efforts from 2028

The Financial Conduct Authority (FCA) expects to begin overseeing the anti-money laundering (AML) efforts of some lawyers before the end of 2028, the government has confirmed, marking the most significant shift in AML supervision for the legal sector in years.

Treasury minister Lord Pitt-Watson told the House of Lords that the first wave of firms would move to FCA supervision under the Financial Services and Markets Bill, with the broader aim that all in-scope professional services firms will be supervised by the regulator by mid-2030.

Why the change is happening

At present, lawyers, accountants and trust and company service providers are supervised for AML compliance by their own professional bodies. For solicitors, that means the Solicitors Regulation Authority (SRA) checks that firms are meeting their obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 — commonly known as the Money Laundering Regulations 2017.

The government argues that the current system is too fragmented. Lord Pitt-Watson said there are currently 23 separate AML/CTF supervisory bodies, creating inconsistency in how firms applying the same rules are treated. The Financial Conduct Authority FCA is expected to bring a more co-ordinated, risk based approach to supervision across the professional services sector.

"This reform is not about applying a banking-style or one-size-fits-all supervisory model," Lord Pitt-Watson said. "The future regime will be proportionate and risk-based and establish a more consistent and effective framework, while recognising the different characteristics and risks of those sectors."

What the timetable looks like

The transition will be phased. The first businesses are expected to be supervised by the FCA before the end of 2028, with further onboarding continuing until all firms within scope are covered by mid-2030.

Lord Pitt-Watson stressed that implementation would proceed only when "the necessary preparations are complete". That includes ensuring appropriate systems, effective information-sharing arrangements, trained supervisory staff and sufficient clarity for firms about the future regime are all in place.

For law firms, the timeline matters. A move in 2028 gives medium-sized and larger firms around two years to review their AML controls, documentation and risk assessment processes before they come under a new supervisor with different expectations and enforcement powers.

Concerns about cost and duplication

The proposal has drawn sharp criticism from peers. Liberal Democrat Treasury spokeswoman Baroness Kramer said professional groups were "utterly dismayed" by the move and warned that fees could "increase very significantly".

She also raised concerns that the FCA appeared to expect professional bodies to continue providing guidance and education "on an unpaid basis", which she described as unrealistic.

Crossbencher Lord Vaux of Harrowden warned that firms could end up dealing with two regulators rather than one. "It seems inevitable that this will have cost impacts for those firms even if, as the FCA argues, the regulatory rules themselves will not change," he said. "That is likely to be especially true for smaller firms."

Lord Vaux also criticised the bill's impact assessment, saying it relied almost entirely on the argument that the AML rules would stay the same and failed to address the practical costs of moving from one supervisor to two.

What will actually change for law firms?

In practical terms, the rules themselves are not being rewritten. The Money Laundering Regulations 2017 will continue to set out the core AML obligations for the legal sector, including customer due diligence, ongoing monitoring, record-keeping and the requirement to report suspicious activity to the National Crime Agency.

What will change is the supervisor. The FCA already regulates financial services firms for financial crime compliance and has deep experience with AML/CTF supervisory work. It also has stronger enforcement powers than many professional regulators, including the ability to impose substantial financial penalties and public censures.

For law firms, that means their anti-money laundering AML policies, risk assessment frameworks and staff training will need to stand up to FCA-style scrutiny. Firms that have treated AML as a tick-box exercise may find the transition uncomfortable.

The role of OPBAS and the counter-terrorism framework

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) currently sits within the Financial Conduct Authority but oversees the professional body supervisors rather than firms directly. Baroness Kramer acknowledged that the existing system had "historically suffered from fragmentation", but argued that OPBAS was dealing with it "reasonably effectively".

The new regime goes further by making the FCA the direct AML/CTF supervisory body for firms in scope. That brings lawyers into the same counter terrorism and anti-money laundering AML supervisory framework that already governs banks and other financial services firms, with the same emphasis on enterprise-wide risk assessment, robust controls and credible challenge from the regulator.

Preparing for the move

Solicitors should use the run-up to 2028 to review four areas in particular:

First, risk assessment. A firm's practice-wide risk assessment is the foundation of its AML compliance. The FCA will expect this document to be specific, up-to-date and linked clearly to the firm's client base, services and geographic exposure.

Second, customer due diligence. Firms should check that their CDD files are complete, that enhanced due diligence is applied consistently to higher-risk matters, and that source-of-wealth checks are documented where required.

Third, suspicious activity reporting. The FCA will want evidence that staff understand when and how to file a suspicious activity report, and that the firm has a clear internal escalation process.

Fourth, training records. Under a single AML/CTF supervisory model, the regulator is likely to test whether staff at all levels understand the firm's AML obligations and can apply them in practice.

Our view

Consolidating AML and CTF supervisory oversight under the FCA is sensible in principle. A single, expert regulator should reduce the inconsistencies that arise when 23 bodies interpret the same money laundering terrorist financing rules differently.

But the transition must be funded properly. If professional bodies are expected to keep producing guidance while the FCA takes over supervision, the costs will fall somewhere — most likely on firms through higher fees or duplicated audits.

Smaller firms are right to be nervous. They already face significant AML compliance costs and the risk of being caught between two supervisors during the phased handover. The government should publish a detailed fee model and a clear implementation road map well before the first firms move in 2028.

The message for law firm compliance officers, COLPs and COFAs is clear: start preparing now. The FCA is coming, and its approach to financial crime supervision will be more demanding than many firms are used to. Those that treat the next two years as an opportunity to strengthen their AML controls, rather than simply wait for the rules to change, will be in a far better position when the regulator knocks.