Money laundering: Proposals risk being unfair and unworkable
Government changes to anti-money laundering (AML) rules around pooled client accounts (PCAs) could cause “significant and uncertain compliance burdens” for law firms, the Law Society has warned.
The changes “do not enhance the effectiveness of efforts to combat money laundering” and went against the government policy of reducing unnecessary and ineffective compliance burdens, it said.
“The provisions relating to the banking sector are so widely drawn that they are likely to have serious unintended consequences for many in the legal profession.
“As a result, the proposals risk being both unfair and unworkable, potentially displacing legal services through removal of PCA services and thereby restricting access to legal services.”
The society was responding to the Treasury’s technical consultation on the draft Money Laundering and Terrorist Financing (Amendment and Miscellaneous Provision) Regulations 2025.
They implement reforms announced in July that aim to improve the regime; one of the goals is to increase the supply and accessibility of PCAs, which it noted were used by solicitors among others to hold client funds on behalf of a number of different clients.
The draft regulations decouple PCAs from the simplified due diligence (SDD) framework – which limited who financial and credit institutions could offer them to – and introduce a new provision requiring them to take reasonable measures to understand the purpose of the PCA and assess the risk, and then if needed put controls on the PCA to manage it.
Further, holders of PCAs must, on request, provide the bank with information about the identity of persons whose funds are held in the account – raising questions, experts have said [1], around confidentiality and possibly legal professional privilege.
The changes, the Law Society said, “would require full due diligence on all underlying clients, regardless of the assessed risk level or the safeguards already inherent in pooled account structures”.
The Treasury had not justified the policy change or considered the operational impact, the response went on.
“PCAs are commonly used by law firms to facilitate routine transactions on behalf of clients, including in conveyancing, probate, and corporate matters.
“Requiring full due diligence on all underlying clients of pooled accounts would impose a significant administrative and financial burden on legal practices —especially small and mid-sized firms. This change may result in delays, increased costs, and reduced access to legal services for the public.
“It also introduces substantial uncertainty around the practical application of the revised rules, for both firms and supervisors.”
The society said that no “compelling evidence” had been provided to demonstrate that the current approach to PCAs presented a “systemic risk” to the AML regime.
“Without clear evidence of abuse or regulatory failure, the proposed amendment appears disproportionate and misaligned with the principles of better regulation.”
The society recommended that the Treasury retain the option to apply SDD in respect of PCAs, where the risk assessment supported it and reaffirm the government’s commitment to a “risk-based and proportionate” AML framework.
To deal with the confidentiality issue, it went on, the Treasury should also provide that disclosures are “permitted by law” for professional conduct purposes and issue accompanying guidance encouraging transparency with clients about any required disclosures.
The Law Society also described as “a missed opportunity” the government’s failure to address shortcomings in regulation 39, which would allow solicitors to rely on another person to conduct client due diligence for them in certain circumstances.
“The failure to remove the possibility of criminal liability for the relying party continues to serve as a major deterrent to the appropriate use of reliance mechanisms across the legal profession,” it said.
Meanwhile, in his analysis [2] of the PCA issue, John Binns, a fraud partner at BCL Solicitors in London, commented: “It is difficult to understand how [HM Treasury] could believe these changes would encourage or increase the provision of PCAs, or how they could credibly be seen as reducing regulation – especially compared with the provisions they would replace, which (as a reminder) do not restrict their provision at all, but enable the application of SDD to them.”
Mr Binns said it was “surely inappropriate” for the Treasury to make “such a fundamental change under cover of ‘technical’ amendments to the MLRs, which have not meaningfully flagged in the consultation process”.
The Treasury should “pause, reconsider its proposed changes on this issue, and return them to the table only when it has considered and consulted on them properly”.