Posted by Yazad Bajina, chief commercial officer at Legal Futures Associate Kord
Baijina: Will the SRA reward good judgement?
As of 30 June 2026, the money laundering regulations have been updated again. After years of tightening, HM Treasury is framing these updates as making the regime more proportionate and addressing unnecessary over-compliance.
This may come as a surprise given that the Solicitors Regulation Authority (SRA) still views a third of firms as non-compliant.
But in a sense, the new rules permit firms to do less. The question is whether that will help them do better.
With many firms treating regulations as a technical checklist, a slight loosening could be the prompt firms need to trade old habits for actual judgement.
Challenging risk aversion
The headline change is that the trigger for enhanced due diligence (EDD) has been narrowed. EDD is no longer mandatory for all ‘complex’ transactions, only for ‘unusually complex’ ones.
The change has been made because the old rule was found to encourage overly risk-averse behaviour, especially when almost any transaction could rightly be regarded as complex.
Country-based EDD has also been cut back. Mandatory country EDD now applies only to the Financial Action Task Force (FATF) call-for-action list – the likes of North Korea, Iran, and Myanmar – rather than the whole grey list.
Alongside new rules on crypto and pooled accounts, it represents an attempt at clarification and simplification, rather than introducing a whole new raft of duties.
Less is more
Doing less isn’t necessarily easier than over-compliance.
‘Complex’ is easy to comply with: firms could simply regard everything as complex and run EDD on everything. ‘Unusually complex’ asks firms to make and defend a judgement of what counts as usual.
Firms must document why and how these decisions were made before they can justifiably do less. This arguably demands more professional judgement and competence than simply running EDD on every matter.
A risk-based regime only works if firms exercise the discretion it affords them. While the rule can grant firms some latitude, it can’t supply the judgement they need to make it work.
Permission ≠ confidence
SRA fines have risen in frequency and severity, with conveyancing still recognised as a particularly high-risk practice area, and the profession is readying itself for the more data-led approach of the Financial Conduct Authority.
In an environment where under-compliance is punished hard, over-compliance is an understandable response.
But given the latitude to do so, will firms actually do less? Do these new regulatory changes remove the fear that drives over-compliance?
The proportionality dividend only reaches firms confident enough to justify why they did less. Everyone else is just as likely to keep over-checking, whatever the rule now allows.
Taking the latitude
Part of the onus sits with the supervisor. Proportionality holds only if the SRA actually rewards good judgement. If all it does is penalise gaps, firms will keep over-complying to make sure they’re closed.
But if the SRA gets the balance right, firms will reap the proportionality dividend with a tighter, more focused approach to compliance.
Doing so requires them to develop the confidence to exercise the judgement the supervisor now expects of them.
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