AML: Moves risks increasing the burdens on law firms
Regulation by the Financial Conduct Authority (FCA) for anti-money laundering (AML) will feel “very different” for law firms, the Solicitors Regulation Authority’s (SRA) chief executive has predicted.
Paul Philip said he was “disappointed” by the government’s decision [1] yesterday to transfer the regulation of all lawyers’ AML activities to the FCA – the SRA had lobbied to be the sole supervisor for the legal sector.
In a media briefing at yesterday’s SRA compliance conference in Birmingham shortly after the announcement – the content of which he said the SRA was not told about in advance – Mr Philip said: “There’s been plenty of comment about the fact that our fines are increasing as the months go by because we’re just finding more and more just [AML] non-compliance. I think the FCA will continue that.
“And actually their whole model of regulation is rules based as opposed to principles based. I think being on the receiving end will feel very different.”
He added that the SRA’s view was that the fewer regulators there were for law firms, the better. With around 280 solicitors working for the SRA, Mr Philip highlighted the understanding of the profession that it has.
SRA chair Anna Bradley agreed that, although all regulators were subject to exactly the same AML rules, “the approach is different”. She continued: “So I think that there will be big issues for the profession about how they work with the FCA over the next period.”
The SRA currently has 30 staff working on AML and Mr Philip said the money saved from not doing the work could either go into other parts of its operation or be used to reduce practising fees.
It is not yet clear how the FCA will collect money from the legal profession to pay for its AML work.
In a statement, Steve Smart, executive director of enforcement and market oversight at the FCA, said: “We recognise the benefits of an improved regime for anti-money laundering supervision. These changes will simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime.
“The FCA will work closely with the government, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), professional body supervisors, HMRC, the firms we will be supervising and others, as we work together to equip the UK to better fight financial crime.
“We can draw on our extensive expertise in this area to facilitate a smooth transition and ensure effective regulation.
“The new regime will create enhanced opportunities for collaboration with key partners, including law enforcement, to tackle money laundering.
“The FCA operates nationwide and we anticipate having a significant presence for this new regime in our offices outside of London.”
The reaction from the legal profession more broadly was largely negative. Sheila Kumar, chief executive of the Council for Licensed Conveyancers, which will also lose its AML role, said: “This is not the outcome we had expected because, as we and others – including all the other legal sector regulators – made clear to HM Treasury in response to the 2023 consultation, it will create a dual supervision regime and risks increasing the burden on the regulated community and a financial burden that will be passed on to users of legal services.
“We await the detail and the next consultation on the operation of the new arrangements.”
She added that the CLC was concerned that creating a separate regime for AML supervision “will require significantly more coordination between front line regulators like the CLC and the FCA as the supervisor of AML compliance but risks opening up gaps in the insight that we currently have across all areas of the practices that we regulate”.
Law Society president Mark Evans said the decision “comes with many challenges”, including the cost implications of implementing the new model and the danger of increasing regulatory burdens.
“In its new role, the FCA should have a greater focus on proportionate risk-based regulation, rather than blind compliance. There must also be a careful transition between the SRA and the FCA, so that cost and complexity risks are mitigated for our members and their clients.”
The Law Society had backed a single AML supervisor for the legal sector, without identifying who it should be.
The Law Society of Scotland is another that will lose its AML role. David Gordon, convener of its regulatory committee, urged the government to reconsider: “We are frustrated and disappointed with this decision, which imposes a finance-sector focused AML regulator on law firms and all other professional services…
“We do not believe the FCA will be able to replicate our knowledge of Scotland’s legal sector, let alone improve oversight…
“It is difficult to see how a body overseeing banks and other finance sector businesses with thousands of staff can also provide effective enforcement and support for single-solicitor law firms. This will be especially the case if FCA resources remain so heavily concentrated in London.”
Accountants are facing the same switch and the Institute of Chartered Accountants in England and Wales (ICAEW) said it was disappointed too.
Parjinder Basra, chair of its regulatory board, said: “This decision will only increase the regulatory burden and costs to firms, making business growth more challenging, while creating greater confusion within the regulatory framework and leading to even more fragmentation in the way key information is held and maintained about the activities of professional services firms.
“We intend to continue to engage with ministers and Treasury to ensure that all of the ramifications of this decision are understood, and to suggest alternative ways forward.”
Earlier this year, campaign group Spotlight on Corruption called for a single body [2] to police AML across the UK legal sector and its executive director, Susan Hawley, backed the Treasury decision.
“This bold decision to make the FCA a super-regulator for money laundering is long-awaited and really welcome,” she said.
“The FCA’s relatively strong capacity, expertise and appetite to take enforcement action has the potential to shake up the legal and accountancy sectors who are used to seeing their supervisors go softly on them.
“However, this will only work if it is sustainably funded, with reinvestment of money laundering fines back into supervisory capacity, and draws in existing sector-specific expertise.
“And it is crucial that existing regulators do not take their foot off the pedal while we await legislation which could risk things getting a lot worse before getting better. It’s crucial that HMT fast track the development of legislation to kickstart the transition process.”
Colette Best, director of AML at City firm Kingsley Napley and a former head of AML at the SRA, commented: “The FCA is not a natural supervisor for legal services and there are a lot of questions to be answered. In particular, firms will need to know the timescale for this change, whether they will need FCA authorisation and what happens to AML supervision in the meantime.
“There is also a question over whether the SRA will retain their wider responsibilities to promote the prevention and detection of economic crime.
“Given the FCA’s already broad and expanding remit, it will need a significant increase in resources to fulfil this additional function. It is not immediately obvious how this is going to fit into its current structure and its funding arrangements.
“There will also need to be new legislation to give the FCA the necessary investigative, disciplinary and funding powers to manage its new responsibilities for professional services. This may all take time to effect.”
Nick Henderson-Mayo, head of compliance at training company VinciWorks, said the change to the FCA risked replacing one set of problems with another.
“The FCA has long faced criticism from the financial services industry for slow responses, inconsistent supervision, and unclear expectations – and now it’s being handed the keys to the legal profession. “With the Reform Party under Nigel Farage openly pledging to scrap the FCA, it’s hard to see this as a recipe for long-term stability.
“The SRA may have been the devil we know, but it understood the unique risks and realities of legal practice. A rushed or heavy-handed transition could drive up compliance costs, confuse responsibilities, and leave firms navigating yet another layer of bureaucracy.
“If not managed with real care, this could destabilise one of the UK’s most trusted and globally respected professions.”
Jennifer Dunlop, managing director at Compliance Office, a consultancy, added: “Whatever the politics, this change will mean real work for law firms. Policies, procedures, and risk assessments that were built around SRA guidance will all need to be reviewed and, in many cases, rewritten.
“Firms will have to familiarise themselves with an entirely new supervisory approach, reporting framework and enforcement culture.
“If this happens, it won’t be a quick update. We can expect a total change in how AML compliance will be monitored and enforced.”
Max Hobbs, senior associate at London business crime law firm Robertson Pugh Associates, said: “This is a significant change in principle, but the real test will be its practical implementation.
“The emphasis the Chancellor has given to cutting bureaucracy and improving competitiveness suggests that the handover from the SRA to the FCA might come with a reduction in supervisory oversight or intervention.
“This seems somewhat inevitable, unless the capabilities of the SRA are transplanted wholesale into the FCA in support of this change. But on the other hand, it seems law firms will have to deal with, and pay fees to, two regulators rather than one, which will certainly increase bureaucracy.”
Rebecca Hughes, senior associate at Corker Binning, another business crime specialist, said: “Although this news appears to have taken many by surprise, the truth is that the writing has been on the wall for the SRA for some time now as it has been under mounting pressure from its watchdog, OPBAS.
“Faced with widespread, persistent non-compliance linked to recurring issues, including inadequate AML controls and risk assessments at firm, client and matter levels, the SRA’s promised focus on more data-led, proactive supervision in 2026 is arguably too little, too late.”