The transfer of AML supervision to the FCA is firmly on the legal sector’s radar. The more useful question now is what to do before the transition happens.
The exact timetable and final supervisory mechanics are still being worked through, but the direction is clear. The FCA is likely to bring a more data-led, outcomes-focused and interventionist style of supervision than many firms are used to.
That makes now a good time to test whether existing AML controls are genuinely effective, rather than simply documented.
Take our 5 Step FCA Readiness Test…
1. Test whether your controls work
Do not limit the exercise to reviewing policies. Sample live and closed files. Check whether client and matter risk assessments are completed properly, whether source-of-funds enquiries are proportionate and whether enhanced due diligence is triggered where it should be.
The key question is not whether the process exists. It is whether people follow it.
2. Improve your management information
The FCA is increasingly data-led. Firms should be able to produce reliable information on higher-risk matters, PEP relationships, EDD cases, internal suspicious activity reports, AML breaches and remedial actions.
More importantly, someone should be analysing that information for trends.
3. Strengthen senior oversight
AML needs visible ownership at board and partnership level.
Senior leaders should understand the firm’s principal risks, what weaknesses are being identified through monitoring and what is being done to address them. That is different from simply delegating responsibility to the MLRO.
4. Look at the FCA’s supervisory mindset
Law firms do not need to start behaving like banks, but the FCA’s existing approach gives a useful indication of what it values: risk-based controls, senior accountability, effective monitoring, good management information and evidence that systems work in practice.
That is a sensible benchmark to start working towards now.
5. Keep the evidence
If a weakness is identified and fixed, record it. If the risk assessment changes, document why. If a policy review results in no changes, retain the rationale.
Under closer supervision, the ability to evidence judgement and remediation will matter.
Prepare for the regulator you are getting
There is no need to rebuild an AML framework around rules that have not yet been finalised. But there is every reason to use the transition period to pressure-test the one you already have.
The firms best prepared for FCA supervision will be those that can explain their risks, demonstrate that their controls are working and produce evidence to support both.