Supervisory bodies

Supervisory bodies

Contents

What is a supervisory authority?

Regulation 23 of the 2007 Regulations provides for several bodies to be supervisory authorities for different parts of the regulated sector.

The list of approved supervisory authorities is set Regulation 23 and in Schedule 3 to the 2007 Regulations.

By way of example:

  • The supervisory authority listed in the 2007 Regulations for solicitors in England and Wales is the Law Society of England and Wales. This responsibility has been delegated in practice to the Solicitors' Regulation Authority (SRA)
  • Each of the CCAB bodies is a supervisory authority in relation to auditors, external accountants and tax advisers that it regulates
  • The Financial Services Authority is the supervisory authority for credit and financial institutions which are authorised persons; trust or company service providers which are authorised persons; and certain financial institutions
  • Those auditors, external accountants and tax advisers that are not members of, or otherwise regulated by, one of the professional bodies listed in Schedule 3 will be supervised by HM Revenue and Customs (HMRC). Similarly, in relation to trust or company service providers which are not supervised by the FSA or one of the professional bodies listed in Schedule 3

It is possible that a person in the regulated sector may be covered by more than one supervisory authority. Some accountants and lawyers, for example, are authorised and regulated by the FSA because they are involved in mainstream regulated activities, e.g. advising clients directly on investments such as stocks and shares. In such a case both the relevant professional body and the FSA will be the supervisory authority. This is distinct from accountants and lawyers providing services under the Designated Professional Body provisions of Part XX, section 326 of the Financial Services and Markets Act 2000, or otherwise providing financial services under the oversight of their professional body, where only the relevant professional body will be the supervisory authority.

Accountants and lawyers may also offer services bringing them within the definitions of a tax adviser, insolvency practitioner, or trust or company service provider. This may affect which authorities have responsibility for supervision. Other bodies that may have a responsibility in such circumstances may include the Insolvency Practitioners' Association, the Council of Licensed Conveyancers and the Chartered Institute of Taxation.

Where there is more than one supervisory authority, either the joint supervisory authorities must negotiate who is to be the sole supervisor of the person, or they must co-operate in the performance of their supervisory duties. It is possible that some businesses will have to respond to more than one supervisory authority.

Role of supervisory authorities

A supervisory authority must:

  • Monitor effectively the persons it is responsible for
  • Take necessary measures to ensure their compliance with the requirements of the 2007 Regulations
  • Report to the Serious Organised Crime Agency (SOCA) any suspicion that a person it is responsible for has engaged in money laundering or terrorist financing

Powers of supervisory authorities

Part 5 of the 2007 Regulations gives supervisory authorities a variety of powers for performing their functions under the regulations. They can also impose civil penalties for non-compliance.

The powers are:

  • Regulation 37: power to require information from, and attendance of, relevant and connected persons without a warrant
  • Regulation 38: power to enter and inspect without a warrant
  • Regulation 39: power to obtain a warrant to do things under regulations 37 and 38
  • Regulation 40: power to obtain a court order requiring compliance with regulation 37

HM Treasury has stated that supervisory authorities may use these powers only in their role as supervisor, and only on those relevant persons they supervise.

These powers are in addition to any other powers such supervisory authorities have to discipline or regulate their members.

Guidance

Supervisory authorities may issue guidance to assist their members to comply with relevant legislation and professional requirements. However, such guidance is not a substitute for the law, and compliance with it, is not a defence to offences under POCA, the Terrorism Act or the 2007 Regulations. Courts will, though, generally have regard to any good practice on a particular topic issued by a professional body when considering the standard of a professional's conduct and whether they acted reasonably, honestly and appropriately.

Further, a supervisory authority will take into account whether a relevant person has complied with any guidance that it has issued when undertaking its role as a regulator of professional conduct and as a supervisory authority for the purposes of the 2007 Regulations. While guidance may be expressed not to be mandatory, a relevant person may nonetheless be asked by their supervisory authority to justify a decision to deviate from it. This is not to say that alternative interpretations of the UK anti-money laundering regime or alternative good practice methods can never be justified; however, a relevant person will need, if they have departed from any guidance given, to be prepared to explain to their supervisory authority the rationale for their procedures and why they consider that they are compliant with law and regulation.

Where guidance is issued that is approved by HM Treasury, the court, in accordance with Regulation 45(2), is required to consider compliance with its contents in assessing whether a person committed an offence or took all reasonable steps and exercised all due diligence to avoid committing the offence. The CCAB has obtained Treasury approval to the guidance issued by it Anti-money laundering guidance for the accountancy sector (opens a PDF). The Law Society is seeking Treasury approval to its guidance.

Note that relevant persons may need to have regard to guidance issued by more than one supervisory authority.

For example:

  • Accountants and lawyers providing financial services and regulated by the FSA may need additionally to refer to FSA requirements, which incorporate anti-money laundering guidance issued by the Joint Money Laundering Steering Group (JMLSG)
  • Businesses that provide both accountancy services and trust or company services and that are supervised by HMRC may also need to have regard to 'Appendix 8: Supplementary guidance for trust or company services providers' of the HMRC guide (opens a PDF)
  • Auditors will need to have regard also to the Auditing Practices Board Practice Note 12 'Money Laundering: Interim Guidance for Auditors in the UK'
  • Tax advisers will need to have regard to the Supplementary Anti-Money Laundering Guidance for the Tax Practitioner developed by the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Association of Taxation Technicians, the Association of Chartered Certified Accountants, the Chartered Institute of Management Accountants and HMRC for professionals providing tax services.