The UK government will hand supervision powers for all lawyers’ AML obligations to the country’s financial regulator, in a move that is expected to seriously test its capabilities.
Key takeaways
FCA to assume anti-money laundering supervision powers from the SRA, expected to be a "big adjustment" for the regulator
SRA disappointed to have lost its role, had expressed its desire to be the "consolidated legal sector supervisor" proposed in the consultation
The change means all lawyers covered by the Money Laundering, Terrorist Financing and Transfer of Funds regulations will have two regulators
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HM Treasury yesterday designated the Financial Conduct Authority as the single professional services supervisor for anti-money laundering (AML). It comes as a blow to the Solicitors Regulation Authority (SRA), which has been responsible for regulating AML compliance since its inception in 2007.
Under the Money Laundering, Terrorist Financing and Transfer of Funds regulations (MLRs) in 2017, all firms doing in-scope work must maintain and keep up to date a firm-wide risk assessment and have compliant AML policies, controls and procedures in place.
The change means all lawyers covered by the MLRs will have two regulators. The FCA will now cover AML activities while their existing professional regulators - such as the SRA, Bar Council and Chartered Institute for Legal Executives - will oversee everything else.
SRA chief executive Paul Philip said at a conference yesterday that he only found out about the change at the start of this week. “We would say we are disappointed, but this is a wider government issue … Our concerns are about transition and how long it would take. We have got to try and keep the show on the road,” he said, according to a report in the Law Society Gazette.
The government has exerted pressure on the SRA’s approach to AML in recent years, leading to increased enforcement actions and the government upping the regulator’s fining powers to £25,000. SRA chief Philip said in May 2025 that the authority was concerned it was “still finding fairly basic deficiencies in AML arrangements within firms”, which followed a report in 2022 that highlighted the same issue.
The overhaul comes almost two years after the Treasury began consulting on the changes. The SRA had responded to the consultation expressing its desire to be the consolidated legal sector supervisor.
Big adjustment
The reform represents a “really seismic” change to the UK’s anti-money laundering landscape, Kathryn Westmore, a senior research fellow at the Centre for Finance and Security at the Royal United Services Institute, told Lexology PRO. It comes after the UK’s fragmented supervisory landscape has “long been a cause for concern, particularly the inconsistent supervision of the legal and accountancy sectors”.
The change will be a “big adjustment for the FCA”, bringing it tens of thousands of new firms to supervise that will require a significant investment to ensure that they have their capacity and expertise to carry out their new role successfully, Westmore said.
“The SRA and the other professional body supervisors will, no doubt, be very disappointed, particularly given their efforts to improve, but the reality is that the status quo isn’t working,” she added.
The FCA will need to develop a “deep understanding” of the legal sector and ensure it has the right resources and skillsets to supervise effectively, Steve Smith, partner at Eversheds Sutherland, said. “We anticipate a period of adjustment, but ultimately this could lead to a more coherent and effective AML regime.”
“I suspect that law firms will find this will be a very different world,” Simon Harbord, head of consulting and auditing at Teal Compliance, told Lexology PRO. “Current legal services regulators have not done a rigorous enough job of ensuring compliance - ie on a day-to-day basis, are fee earners in firms doing what is required of them?”
The Treasury yesterday expressed hope that the FCA would build “specific expertise in the particularities of each sector it supervises”. This included issues such as legal privilege, “the importance of which we recognise”.
The regulator would be able to take “strong enforcement action where it is necessary, ensuring there is a clear incentive to comply and that robust action is taken against the minority of wilfully negligent or complicit firms,” it added.