Anti-money laundering/counter-terrorist financing supervision reform: A review of key changes for professional services firms

In October 2025, HM Treasury announced its decision to appoint the FCA as the sole anti-money laundering (AML) and counter-terrorist financing (CTF) supervisor of professional services firms (such as legal, accountancy and trust and company service providers (PSFs)) under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). 

In June 2026, HM Treasury released its response to feedback received during a consultation launched in November 2025 concerning the potential scope of the FCA's powers following that decision. The response confirms that the FCA will be given wide-ranging investigatory, supervisory and enforcement powers, many of which will be unfamiliar to PSFs regulated by other professional body supervisors (PBSs). Although much of the detail regarding the nature and scope of these powers remains to be determined, the proposals have generated a plethora of conflicting opinions among industry stakeholders.

In this article, we unpack the most significant proposals from the consultation response and consider what they may mean for PSFs.

What do we know about the proposed changes so far?

The new framework proposes to grant the FCA a broader range of supervisory and enforcement powers to ensure that firms comply with AML/CTF requirements. These include:

• the power to require PSFs to commission skilled person reports where concerns arise in relation to compliance with the MLRs;
• gatekeeping powers to ensure that each PSF's beneficial owners, officers and managers (BOOMs) are "fit and proper" to carry out their functions;
• broader supervisory and enforcement powers such as: (i) information gathering powers (including the power to obtain documents from third parties save for those subject to existing legal professional privilege (LPP) protections); and (ii) powers to issue directions and impose financial penalties.

These powers will also be supplemented by a streamlined enforcement process for minor regulatory breaches on which HM Treasury intends to consult in due course.

The process for issuing sectoral AML/CTF guidance will also change. Although the preference for practitioner-drafted guidance remains:

• the FCA will become the primary approver of such guidance, while also being able to issue guidance itself; and
• HM Treasury will continue to hold some control through a right to veto any proposed guidance. Further consultation on how this process will work in practice is expected in the near future.

Below we discuss each of these key aspects of the new framework in more detail.

Skilled person reviews

As mentioned above, the new framework will allow the FCA to require PSFs to commission a skilled person report where the FCA believes it is reasonably necessary in connection with its functions under the MLRs. A skilled person review involves the appointment of an impartial third party to report to the FCA on certain aspects of a firm's activities where the FCA has concerns. These powers can be traced back to s.166 of FSMA, although they were introduced into the MLRs in 2020 to cover crypto asset businesses.

Skilled person reviews will often require extensive disclosure of a firm's internal documents, policies and procedures, together with interviews of key staff, culminating in a report outlining findings and any remedial steps required. These reviews will often be time-consuming and expensive to manage, which will pose new challenges for firms that are not accustomed to this type of oversight.

Additionally, firms will need to ensure that key decisions are well documented and regularly audited so that compliance can be demonstrated to the FCA should the FCA consider there is a need to appoint a skilled person. This may lead to higher compliance costs and a greater overall regulatory burden, especially for firms under separate oversight e.g., legal services businesses regulated by the Solicitors Regulation Authority (SRA).

Fit and proper requirements

The new reforms will also extend the fit and proper requirements for BOOMs under regulation 58 of the MLRs to legal and accountancy businesses. This means that the FCA can refuse to register a firm under the MLRs (a prerequisite for carrying out business regulated by the MLRs) if any of its BOOMs are not fit and proper to carry out their functions. The FCA will also be able to cancel or suspend a firm's registration if such requirements are not met. This is likely to increase the compliance burden on law and accountancy firms in a number of ways:

• First, firms will need to identify who falls within the definition of BOOM.  If managers include all equity partners in a law firm, for example, a wider population could be captured than within a financial services firm.
• In addition, firms may be required to conduct more in-depth due diligence on their BOOM population to confirm that current and prospective BOOMs retain fit and proper status. Not only will this be costly and time consuming, but it could give rise to a dual regulatory burden for firms already under the character and suitability oversight of other PBSs such as the SRA. Recognising the potential risk of duplication, HM Treasury has assured respondents that it will consult with the current PBSs to evaluate how regulation 58 can be applied proportionately to specialist industries. However, without draft legislation or guidance, it will be difficult to assess how this will manifest in practice.

Legal Professional Privilege and the FCA's Investigatory Powers

As noted above, the FCA will inherit existing PBS powers in relation to information gathering in Part 8 of the MLRs. Most importantly, HM Treasury has clarified that the rules regarding LPP in regulation 72, which prevent legal advice from being required to be disclosed to PBSs, will continue to apply to the FCA under the new framework. However, HM Treasury has expressed that it should be made clear to firms what documents will be required during supervisory visits, and it expects the FCA to issue guidance on how it intends to deal with cases where LPP issues arise. Whilst the FCA cannot require a firm to disclose privileged material, it is not uncommon for the FCA to challenge a firm on the scope of a claim for privilege (such as in relation to internal investigation interview notes).

Broader supervisory and enforcement powers

One of the more notable reforms is the extension of the FCA's power to issue directions to PSFs. This power will also be granted to HMRC and to the Gambling Commission. Broadly, the power will allow these PBSs to prescribe specific actions to be taken or refrained from in notices served on firms where they reasonably believe it is necessary for the purposes of compliance with the MLRs. There are limited restrictions on the giving of directions and in theory, the FCA could, for example, prevent PSFs from taking on new clients where there are serious AML failings. Directions of this nature could be significantly disruptive and it is unclear at this stage when and how this power will be used. However, existing FCA guidance may offer some clues about how the FCA approaches issuing directions more generally.

Moreover, PSFs should be aware that, although the nature of certain enforcement mechanisms such as fines, may not change, they may be calculated differently by the FCA compared to existing PBSs. For example, under DEPP 6.5A, the FCA applies a five-step framework to setting penalties, whereby a penalty can be a percentage of the annual revenue of a firm, provided revenue is indicative of the harm caused by the breach (where the percentage is determined by how serious it is).  The final figure will be subject to adjustment, including for any aggravating or mitigating factors. This varies from the approach taken by HMRC and the SRA under the MLRs at present, meaning that PSFs transitioning to FCA supervision could be exposed to higher financial penalties. HM Treasury also intends to consult with stakeholders on the introduction of a more streamlined enforcement process for issuing smaller fines for minor infractions. This could lead to a greater frequency of lower value fines for firms falling foul of minor AML/CTF requirements, such as those relating to registration or filings.

When all of the above is combined with the FCA's ability to require the appointment of a skilled person and issue directions to firms, it is likely that for all PSFs, the reforms will mean a more complex compliance, supervisory and enforcement regime going forward.

Guidance

A core concern expressed by respondents to the consultation was that the FCA does not have experience in specialist sectors such as legal services to be able to either author appropriate guidance or enforce the MLRs proportionately. To address this, HM Treasury has confirmed that a new approach to guidance will be introduced. At a high-level, the reforms will shift the responsibility of approving guidance from HM Treasury to the FCA. This will mean that the FCA will be able to issue its own guidance or approve practitioner-drafted guidance, with a preference for the latter. In practice, this may result in the Legal Sector Affinity Group and the Consultative Committee of Accountancy Bodies, who are currently responsible for drafting sectoral guidance, continuing to play a role (albeit a less significant one) under the new AML/CTF framework. HM Treasury will also retain a veto over the publication of guidance notwithstanding the FCA's role as a primary approver.

Although many of these changes are likely to be welcomed, practical questions still remain about issues such as conflicting sectoral guidance. However, HM Treasury will continue to consult with practitioners in different sectors to evaluate the best practical way to approach issuing guidance post implementation.

Preparation and next steps

This is undoubtedly one of the most significant reforms to the AML/CTF regulatory framework since its introduction and several key questions remain unanswered.

Initial reforms are set to be introduced through the Financial Services and Markets Bill, with specific amendments being made to the MLRs and, potentially, other legislation such as the Legal Services Act 2007 and the Solicitors Act 1974. It is unclear when exactly these changes will be fully implemented, but estimates suggest that, following a transition period, full FCA supervision could commence as early as 2030.

The consultation response has also made clear that HM Treasury intends to hold further consultations on, among other things, matters relating to:

• proportionate implementation of regulation 58 fit and proper requirements;
• amendments to additional legislation including the Legal Services Act 2007 and the Solicitors Act 1974;
• streamlined enforcement for minor regulatory breaches; and
• the process for issuing guidance.

Until these consultations are concluded, we expect that the reforms described are likely to be implemented in a piecemeal fashion.

Given the significance of these reforms, we would encourage firms to take part in and/or pay close attention to the outcomes of pending consultations. Certain changes such as the extension of the MLRs' fit and proper requirements for BOOMs to all PSFs are likely to affect firms on an institutional level. In response, once the details of the framework is better defined, firms should evaluate the scale and scope of the impact of such reforms on their existing plans and make appropriate arrangements e.g., by conducting an impact assessment, together with scoping the potential size of their BOOM population and whether their compliance function needs to be expanded to deal with the additional requirements.

Our regulatory lawyers have a wealth of experience across various sectors, including with PSFs and specifically with the FCA as a regulator. Should you want to evaluate your business' compliance with the existing AML/CTF regime or prepare for the proposed reforms, feel free to contact one of our experts below.