Posted by Jen Dunlop, managing director, and Jess Irwin, senior consultant, at legal consultancy firm Compliance Office
Jen Dunlop
The Solicitors Regulation Authority’s (SRA) new thematic review into source of funds and wealth compliance lands at a critical moment for the profession, following the recent announcement that the Financial Conduct Authority (FCA) is to take over anti-money laundering (AML) supervision from the SRA and all the other legal regulators.
The thematic review reveals both progress and persistent blind spots. Compliance has improved, but too often source-of-funds (SoF) checks are thought of as a procedural hurdle by solicitors, rather than an important and necessary step to allow them to fully analyse and subsequently address the risks of a particular client or matter.
It is quite clear that having compliant policies, controls and procedures in place is simply not enough. Firms need to ensure staff comply fully with those policies and do not treat source of funds and wealth checks as a tick-box exercise.
The review is based on engagement with 19 firms and a review of more than 5,800 files from 2024 and 2025. It confirms that, on the whole, firms are asking the right questions but are not always interpreting the answers correctly.
It’s the gap between simply collecting information and conducting a full review and analysis of the information gathered that remains the Achilles’ heel of AML compliance.
The SRA’s inclusion of templates and case studies is welcome, particularly for firms still formalising their processes. The client explanation note is a step forward in helping lawyers handle sensitive conversations about financial scrutiny; however, it’s surprising that the source of wealth queries, often the most uncomfortable, are not explicitly addressed.
For practitioners, the real value lies in the SRA’s examples of good and poor practice. They show that the regulator is less interested in perfection and more focused on whether there is clear evidence on file showing how and why a particular decision was made.
Questions to ask yourself are: Does the information make sense given everything I know about this client/matter? Are there any red flags, and if so, can I evidence why I am comfortable proceeding?
The SRA expects you to have clear audit trails, and getting into this habit now is likely to stand you in good stead with the move to the FCA in years to come. Key considerations are ensuring you evidence the enquiries made and your analysis and understanding of that evidence; this is where firms still fall short.
The review’s subtext is worth noting. Despite improved compliance, 11% of cases still showed no SoF checks at all. Others revealed a clear disconnect between the information gathered and the actual origin of funds received, with no red flags raised or further enquiries undertaken.
That’s not just due to poor record-keeping; it’s down to a deep-rooted nervousness among some lawyers about challenging clients, especially long-standing ones.
But as the SRA points out, this reluctance leaves firms open to serious risk of being used by criminal clients to facilitate money laundering.
The review also reinforces a pragmatic point: firms can pass the cost of customer due diligence to clients, provided it’s disclosed clearly in advance. With resourcing pressures mounting, this reminder may offer some relief and allow firms to consider investing in better systems and training to streamline the onboarding process.
Key lessons for firms
Don’t assume legitimacy. Funds sitting in a UK bank account aren’t inherently clean; you must understand how they got there.
Challenge the story. The documents must make sense in the context of the client and transaction, where they don’t, probe deeper.
Align with accounts. Work closely with your finance team to ensure incoming funds match your expectations.
Stay alert to last-minute changes. Altered payment routes or funders are major red flags. Be interested in your client and the transaction, and consider how any changes may impact the risks associated with that matter.
Document the ‘why’, not just the ‘what’. A clear audit trail of your reasoning is as important as the documentary evidence itself.
Source of wealth isn’t optional. Even outside mandatory enhanced due diligence, understanding how clients made their money is a vital safeguard.
Train for judgement. Templates and checklists can’t replace professional scepticism – or the courage to say ‘no’.
This review reads like a progress note – a reminder that the heart of AML compliance lies not in form-filling but in curiosity.
Firms that treat SoF and SoW as administrative exercises will remain exposed. Those that embed critical thinking and challenge into their culture will thrive, especially as the FCA is likely to take a more forensic approach to compliance.
Firms that change their approach now will be ready for whatever the FCA brings in the coming years.
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