Unfinished Business: Effective UK Anti-Money Laundering Supervision

As UK Parliament returns after a long hot summer, and with Burnham’s administration firmly in government, one long-awaited reform is making its way into primary legislation: anti-money laundering (AML) and counter-terrorism financing (CTF) supervision. Reforming the UK’s regime for overseeing legal, accountancy and trust and company service providers (TCSPs) for AML/CTF purposes is one of the most significant pieces of unfinished business from the Financial Action Task Force (FATF)’s 2018 evaluation of the UK – and the child of not one but two UK Economic Crime Plans that spanned seven long years.

Now in 2026 – and a very different world to 2018 – the UK is the President of FATF on the global stage and has made risk-based supervision a priority. Meanwhile at home, the government is promising good growth, publishing a new Anti-Money Laundering and Asset Recovery (AMLAR) Strategy which prioritises more effective AML supervision, preparing to release another Economic Crime Plan after the October 2026 budget and, again, showing FATF how it is all going. There is a lot to do, but the case for persevering with bringing roughly 60,000 legal, accountancy and TCSP firms under the Financial Conduct Authority (FCA)’s supervision for AML purposes is strong. These professional services firms are ‘gatekeepers’ to the financial system and the new regime promises to be more consistent and better equipped to keep dirty money out.

But success will depend on one important question: will reform actually make the AML regime more effective? The prize is an opportunity for the UK to demonstrate genuine international leadership on AML supervision. It is already well ahead of the US who, alarmingly, do not supervise the legal or accountancy sectors for AML purposes at all, while Australia only recently brought the legal and accountancy sectors into their AML framework. Across the English Channel, the UK’s neighbours in the European Union are standardising AML supervision through the single Anti-Money Laundering Authority (AMLA), but there is an open debate about how to achieve harmonisation without the pendulum swinging too far into disproportionate regulation or a one-size-fits all approach.

In fact, most countries struggle with supervising non-financial sectors for AML. FATF found in 2022 that no country had achieved a ‘high’ level of effectiveness on Immediate Outcome 3, which covers risk-based supervision. Since then, FATF has placed a magnifying glass on how countries watch over non-financial gatekeepers such as lawyers, accountants, real estate agents and TCSPs by splitting the FATF assessment methodology into supervision of the financial sector (Immediate Outcome 3) and supervision of non-financial sectors (Immediate Outcome 4). The results so far are telling: in FATF’s latest round of country evaluations, still no country has achieved ‘high’ effectiveness on Immediate Outcome 4, and most countries are just ‘moderate’ besides Singapore, which achieved ‘substantial’ effectiveness.

Coming back to the UK, a mature AML supervisory regime will not get entangled in a binary choice between regulation and deregulation, nor will it stop at impressing FATF, even as the UK walks a tightrope between consistency with competitiveness. It will enable the government, law enforcement and the private sector to genuinely target the most harmful money laundering threats and reduce unnecessary burdens for firms. So, what does the UK need to get right? The Centre for Finance and Security convened experts over summer 2026 across government, regulators, professional body supervisors (PBS), the banking and legal sectors, academia and civil society to explore that question.

Understanding Who You Are Watching

‘Effectiveness’ is one of the most widely used and yet vaguest terms in the AML world, but fundamentally it is about focusing on stopping money laundering – not just demonstrating compliance with the rules. According to the FATF methodology, the risk-based approach is central to effectiveness and entails understanding where money laundering risks lie, taking enhanced measures when risks are higher and simplified measures when risks are lower. This may sound logical but, in practice, effective risk-based supervision is complicated and cannot be assessed in the abstract: a risk-based approach only works if the supervisor genuinely understands the population it is supervising. This requires understanding what makes supervised firms tick, how they behave, how they respond, and changes over time. For the FCA, this will be a serious undertaking. The FCA is not only taking on 60,000 firms, but a varied and diverse set of professions and businesses – ranging from the Big 4 and large law firms to high street conveyancers and individual bookkeepers working from their kitchen table.

This means that the FCA’s immediate resourcing task is equipping itself to understand such a wide range of firms and professions, both before and after the reform transition, noting that the transition itself will inevitably bring new risks. As neither the FCA nor the PBS can see the full picture alone, and the FCA will not have the PBS' informal client monitoring systems, both will need to collaborate in understanding the differences between sectors and firms, and how to adapt their communication and engagement so that everybody knows what they are supposed to be doing and thinks that it is worth it. The FCA's ambition to be a data- and digital-driven regulator offers an opportunity to use technology to grapple with this diversity at scale. But technology will only get the regime so far, without preserving PBS' existing knowledge and putting people with the right sectoral expertise in the right places. Private sector secondments to FCA could help bring sectoral expertise and nuanced knowledge of different firms and sub-sectors, which will be essential to making the new supervisory model work.

A Risk Tolerance That Each Sector Gets Behind

Effective AML supervision also means giving firms the discretion to focus on high risks and do less in low-risk situations, without fear of repercussions if the regulator or government do not agree with their judgements. FATF itself is an imperfect messenger, having historically applied uniform treatment to jurisdictions of very different risk profiles while urging them to differentiate. For the UK, one piece of this puzzle is System Prioritisation, whereby UK law enforcement has agreed with the private sector where to prioritise public and private resources, in an attempt to target their efforts towards the greatest harm.

The dilemma is that firms will always report defensively or over-apply measures if they fear being penalised for making the wrong call. A transparent FCA approach to understanding and articulating a risk tolerance could help to build firms' understanding of where the goalposts lie and bring a sense of having a common objective. The new regime will also bring lawyers, accountants and TCSPs closer to UK law enforcement, creating a genuine opportunity for law enforcement to help the PBS and firms to understand what a money laundering risk looks like, how to spot it, and where to look.

Trust as the Glue for Effectiveness

Across everything that has been discussed, a genuinely effective and risk-based regime depends on one under-appreciated ingredient: trust. Firms need to trust supervisors enough to engage openly, supervisors need to trust firms’ judgement enough to give them discretion, and firms need the right incentives to use their discretion responsibly. Although the UK has strong public-private relationships between the authorities and the banking sector, it is safe to say that in some other sectors – especially the legal sector, with some exceptions – mutual trust is poor.

For example, the legal profession has repeatedly challenged the government on whether there is really a high risk of money laundering in the legal sector, pointing to few convictions as a sign of low risk. FATF’s 2018 evaluation of the UK found that ‘some of the 22 legal and accountancy supervisors do not share the National Risk Assessment’s view that their sectors are high risk’. The Intelligence Sharing Expert Working Groups for the legal and accountancy sectors – which were set up to share information between the PBS, FCA and law enforcement – were disbanded due to a breakdown in trust. The AML supervision transition risks worsening trust, from a shaky foundation, as some professions fear a more heavy-handed regime under the FCA and what this could mean for them. The government is progressing statutory information sharing provisions between the FCA and PBS through the Financial Services and Markets Bill. But trust is the glue that makes all this stick. There is an opportunity for the FCA and PBS to invest in making the relationship work and, crucially, in making sure that everybody gets something of value from it. It may help for banks to share experiences of working with the FCA and UK law enforcement, alongside lessons from the banking sector’s AML journey since the early 2000s.

How Will We Know if it Worked?

AML supervision is supposed to make it harder for criminals to exploit the financial system, but this preventative effect is inherently hard to measure. FATF is beginning its fifth-round mutual evaluation of the UK and will look for outcomes on risk-based non-financial sector supervision under Immediate Outcome 4, such as improved gatekeeper controls, understanding of risk, and collaboration across the system. His Majesty’s Treasury’s (HMT) effectiveness framework for supervision, which was developed under the Economic Crime Plan 2 and designed with FATF assessors’ expectations in mind, looks at supervisory activity such as monitoring firms, ensuring compliance, education and information sharing, as well as gatekeeping outcomes such as firms rejecting clients.

As a practical attempt to measure effectiveness, HMT’s framework is pragmatic – if imperfect – because it measures what can realistically be measured. But measuring success by the number of clients that firms turn away can create perverse incentives, and greater FCA enforcement may demonstrate effective supervision but can also indicate that firms’ behaviour is deteriorating. In practice, the reform’s success could be measured through a range of indicators: retaining supervisory expertise and continuity throughout the transition, making risk-based decisions on resourcing rather than over-compliance, the use and impact of FCA's powers, how relationships and linkages work across the system, improved SAR quality and information flow to law enforcement, and changes in firm behaviour and understanding of their obligations. One practical step would be a survey to legal, accountancy and TCSP firms to establish a baseline of how well firms understand and value their AML obligations, which could be repeated to track progress over time.

And the test now is not to lose the wood for the trees. The UK has a reform window to develop an AML supervisory regime that is smart, world leading and genuinely effective – and which helps the economic crime system work better as a whole. The test of success will not be how smoothly transfer of AML supervision to the FCA occurs, but whether it produces genuinely effective supervision across a large and varied set of firms. The architecture of this reform is largely agreed. What remains is the harder task of filling in and demonstrating the detail that will let different parts of the system trust the process enough to play their part.

© RUSI, 2026.

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