How AML oversight is changing for professional services

The UK government officially confirmed on 21 October its intention to transfer anti-money laundering (AML) and counter-terrorism financing (CTF) supervisory responsibilities from 22 professional bodies – including the Institute of Chartered Accountants of Scotland (ICAS) – to the Financial Conduct Authority (FCA), via the creation of a Single Professional Services Supervisor (SPSS).

The announcement followed a 2023 consultation on reforming the AML/CTF supervisory regime, which itself built on a 2022 HM Treasury review. The review concluded that while improvements had been made to the UK’s AML regime, “some weaknesses in supervision may need to be addressed through structural reform.” While the government has confirmed its preferred model, specific implementation timescales remain unclear.

The SPSS will oversee AML compliance for lawyers, accountants, and other professional services firms. Currently, these responsibilities are exercised by 22 professional body supervisors (PBSs), with ICAEW alone supervising approximately 10,000 firms. Under the new arrangements, the FCA will add around 60,000 firms to the 17,000 it already supervises, representing a substantial expansion of its regulatory remit.

Professional bodies and industry stakeholders have reacted with a mix of surprise, concern, and a commitment to collaboration following the UK government’s decision to transfer AML/CTF supervisory functions to the Financial Conduct Authority (FCA).

Bruce Cartwright CA, chief executive of ICAS, expressed surprise, stating, “We are surprised that the government has decided to transfer AML/CTF supervisory functions to the FCA. ICAS, alongside other professional bodies, has made a significant investment in supervision over recent years, with evidence to support a corresponding increase in effectiveness.” While acknowledging the potential for improvement in the current approach, he advocated for maintaining progress through the evolution of the existing supervisory framework.

Adding to ICAS’s concerns, Robert Mudge, executive director of professional standards, highlighted a “real risk here that a period of uncertainty could have a detrimental impact on the UK’s ability to combat financial crime.” He warned of serious public interest outcomes if this reform mirrors the delays seen in other government proposals.

Julie Matheson, a partner at Kingsley Napley LLP, echoed these concerns, specifically questioning the FCA’s preparedness. She noted, “The FCA is not a natural supervisor for accounting services and there are a lot of questions still to be answered,” regarding timelines, authorisation requirements, and interim supervision. Matheson also pointed out the need for “a significant increase in resources to fulfil this additional function” for the FCA, along with new legislation to grant necessary powers, which she believes “may all take time to effect.”

In contrast to the apprehensions, Sarah Beale, chief executive of the Association of Accounting Technicians (AAT), emphasised a forward-looking approach. While acknowledging “challenges ahead, such as ensuring a seamless data transfer and maintaining specialised support,” Beale stated, “AAT is focused on making this change as smooth as possible,” pledging to work closely with the government, the FCA, and other stakeholders for an effective transition.

Peter Steel, vice president of professional standards and conduct at CIMA, recognised the complexity of the reform. Despite it “not [being] the outcome CIMA recommended,” he acknowledged “the need for a more streamlined approach.” He assured that CIMA will continue to support its MiPs and monitor compliance until direct supervision by the FCA begins.

ICAEW also voiced significant concerns, predicting that the decision “will only increase the regulatory burden and costs to firms, making business growth more challenging, while creating greater confusion within the regulatory framework.” They intend to continue engaging with ministers and the Treasury to ensure a full understanding of the decision’s ramifications and to suggest alternative solutions.

The Treasury’s 2022 review identified structural weaknesses in AML supervision. The following year, the government launched a consultation exploring four potential models for the sector’s future supervision: enhanced powers for the existing Office for Professional Body AML Supervision (OPBAS); consolidation of PBSs into one accountancy supervisor and one legal supervisor, either UK-wide or per jurisdiction (England and Wales, Scotland, Northern Ireland); creation of a single professional services supervisor overseeing all legal and accountancy firms – the model chosen; and the creation of a single AML supervisor covering all sectors, including those already supervised by the FCA, HMRC, and the Gambling Commission.

ICAEW had recommended retaining PBS expertise via option one, arguing that it would be the fastest and most effective to implement. The government’s choice of a single SPSS raises concerns about feasibility, potential short-to-medium-term reductions in supervisory effectiveness, and the risk of losing specialist knowledge cultivated by professional bodies over decades.

ICAEW’s 2023 consultation response warned, “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.”

For accountancy and legal firms, the creation of a single SPSS represents a major operational and compliance shift. Firms may face changes in reporting procedures, inspection practices, and enforcement expectations. Those currently supervised by ICAS, ICAEW, CIMA, or other bodies will need to adapt to FCA-led oversight once the new legislation is in place.

Firms of different sizes will feel the impact differently. Smaller practices may struggle with the administrative and financial implications of transitioning to FCA supervision, while larger firms may need to invest in internal compliance teams or external advisory support to navigate new requirements. 

Matheson highlighted this challenge, saying, “It is not immediately obvious how this [new supervisory function] is going to fit into [the FCA’s] current structure and its funding arrangements.”

Meanwhile, Steve Smith, partner at Eversheds Sutherland, added perspective on both risk and opportunity. “A single, independent supervisor promises greater consistency and could strengthen the UK’s fight against financial crime. Professional services firms aren’t financial institutions – they operate under different risk profiles and regulatory expectations,” he says. “The FCA will need to upskill and resource appropriately to reflect that nuance. For regulated firms, this marks a significant shift, and while it may feel like an added regulatory layer, it also presents an opportunity to streamline standards and improve outcomes.”

Centralising AML supervision under the FCA will require significant resourcing, both in staffing and specialist expertise, according to accountancy bodies. The likes of ICAS and CIMA cite decades of experience embedding AML standards in their members’ practices. As a result, they emphasise that the FCA will need to acquire a comparable level of sector-specific knowledge while overseeing a vastly larger population of firms.

In addition, legislative changes are required to provide the FCA with the necessary investigative, disciplinary, and funding powers to manage its new responsibilities. As several stakeholders have noted, this could take time, creating a period of uncertainty that risks reducing the effectiveness of AML supervision during the transition.

While exact timelines are not yet clear, professional bodies, firms, and regulators will need to collaborate closely to ensure continuity. Existing PBSs will continue to supervise their members until primary legislation is enacted. This transitional period will require careful management of data transfers, guidance updates, and communication to firms to avoid compliance gaps.

On the sector’s role during this transition, AAT boss Sarah Beale said, “We remain committed to supporting our licensed members with the expert guidance, resources, and reassurance they need to stay prepared and compliant throughout this transition and beyond.”

The VP of professional standards at CIMA, Peter Steel, also assured the body’s ongoing engagement with regulators, saying, “We will continue to talk to HM Treasury and the FCA to keep our MiPs informed as the new model develops.”

For firms, preparing for the transition will be critical. Professional bodies will play a key role in supporting members until the FCA is fully operational as the SPSS. Firms should monitor developments closely, engage with their existing supervisors, and plan for potential increases in compliance obligations and reporting requirements.

The government has set the direction of travel; the challenge now lies in executing the transition effectively while maintaining robust standards to safeguard the UK’s fight against financial crime.