On 21st October, the Government announced that the Financial Conduct Authority would assume the regulation of anti-money laundering and counterterrorist financing from the Solicitors Regulation Authority.
The Treasury has since opened a consultation on what duties, powers and mechanisms the FCA will need to do this effectively (closing on December 24th).
It will be sometime before the change comes into effect as it will have to be approved by primary legislation. It will even take more time – and some investigations – before firms have a clear picture of how the FCA intends to exercise its new powers.
However, it seems likely that an FCA investigations will be more forceful, and have a significantly greater ability to seriously damage a firm’s reputation than an SRA investigation may have. Clear, informed messaging, extensive preparation, and robust and detailed stakeholder engagement plans will be essential.
How will the FCA and SRA differ?
Firms should not abandon existing SRA scenarios or enforcement playbooks. The SRA will retain powers to investigate other matters, enforce its Principles, Standards and Regulations, and disbar solicitors.
What the FCA will ultimately be empowered to do remains subject to the Treasury’s consultation. The Treasury currently proposes extending most of the FCA’s existing powers to law firms. For example, while it may not be able to disbar solicitors, the FCA may be able to apply for court orders to have beneficial owners sell their stake in a firm if they have been convicted of an offence.
The FCA is also likely to have access to more assertive enforcement tools, including significant fines, warrants for entry during investigations, suspensions, prohibitions and the ability to bring criminal cases and firms should expect larger fines and potentially more aggressive investigation and enforcement.
Appeals against FCA decisions will ultimately be heard by the Upper Tribunal, not the Solicitors Disciplinary Tribunal.
Once the consultation closes and legislation is enacted, firms will have greater clarity on the FCA’s remit and can begin to plan scenarios, including situations where a firm may face both FCA and SRA action arising from the same matter.
How does the FCA Approach Publicity?
It is important to remember that the FCA see publicity as a crucial method of industry deterrence, and this is embedded in all of their publicity guidance.
The publicity process for an FCA investigation is clearly outlined in its Handbook (under ENFG 41. and ENFG 4.2 ) which sets out how and when investigations and statutory notices may be publicised.
Although the FCA explored a “name and shame” policy in 2024, it ultimately did not proceed and the FCA will continue to only announce investigations before they have concluded in exceptional circumstances. Nevertheless, the fact they proposed the ‘name and shame’ policy at all is an indicator of how they consider publicity as a useful enforcement tool.
Once an investigation concludes, the FCA has a clear policy of statutory notices – Warning Notices, Decision Notices and Final Notices – and media policies for each. The clear guidance means these can be anticipated and planned for – but it should be noted that the Decision and Final Notices in particular are followed closely by media and will receive significant press attention.
What does this mean for law firms?
The move from SRA to FCA oversight represents a significant shift in enforcement culture and communications risk. The FCA has an assertive, deterrence-driven approach, and firms should expect more proactive use of investigatory powers, firmer language in decisions and the possibility of larger financial penalties. The media environment will also be more intense: FCA actions routinely attract national attention, and law firms – less accustomed to crisis-level coverage than banks – will need to prepare stakeholders for sharper external scrutiny.
The risk will be especially high in the first few years after the FCA assumes their new powers. The FCA will want to demonstrate that it can do a good job of regulating AML in the legal sector with some high-profile investigations, and journalists will also be keen to see and analyse what the FCA do. It will be an unlucky firm who are the first to be publicly named under the new regime.
What should I be doing now?
While firms must still await the outcome of the consultation and the legislative changes that follow, the critical considerations from a communications perspective will be:
– The FCA’s stronger enforcement culture
– The increase in media attention
– Understanding and managing the statutory notices
– The potential for simultaneous SRA and FCA scrutiny
Once the FCA’s powers are codified, firms should waste no time preparing a communications strategy for a possible investigation by updating crisis and scenario plans.
Firms that identify any possible AML or counter-terrorism risks should consider them among the most critical reputational issues they could face and plan accordingly. Any firm that has recently self-referred to the SRA should also consider the possibility that its matter could be handed to the FCA and consider incorporating this into communication response plans.
These FCA investigations present a new and much higher reputational risk than SRA investigations did previously, but a catastrophic outcome is not a foregone conclusion. Firms should take time to prepare with clear plans for engaging with the FCA, media and stakeholders and ensure reputational considerations are considered from the earliest stages of the process.
