UK Law Firms Get Ready for Crackdown on Money Laundering
Key Takeaways:
- FCA oversight marks a major regulatory shift — The transfer of anti-money laundering supervision to the Financial Conduct Authority signals tougher enforcement, higher fines, and more rigorous scrutiny for UK law firms.
- Compliance expectations will significantly increase — Law firms must prepare for data-led supervision, stricter client due diligence, stronger governance, and greater personal accountability for partners and senior managers.
- The legal sector faces structural change — Higher barriers to entry and tougher penalties may drive consolidation, reshape business models, and fundamentally alter how firms manage financial crime risk.
UK law firms are bracing for the most significant overhaul of anti-money laundering (AML) supervision in decades, as the government moves to place the Financial Conduct Authority at the centre of enforcement for the legal sector. The change, driven by mounting international pressure and concerns over the UK’s reputation as a destination for illicit finance, is expected to bring tougher penalties, higher compliance costs, and a fundamental reshaping of how law firms operate.
Ministers see the reform as critical to restoring confidence in the City of London ahead of an impending international review of the UK’s financial crime controls. For law firms—particularly those involved in property transactions, corporate structuring, trusts, and cross-border work—the message is clear: expectations are about to rise sharply.
A decisive shift in AML supervision
Under the new framework, the FCA will become the single anti-money laundering supervisor for the professional services sector, including law firms, accountants, and trust service providers. This marks the end of a fragmented system in which AML oversight has been split between nine separate supervisors for the legal profession alone, most notably the Solicitors Regulation Authority.
The consolidation follows a two-year government review that found widespread inconsistency in supervision, duplication between regulators, and serious gaps in information-sharing with law enforcement agencies. Officials concluded that the existing regime lacked both the scale and enforcement “bite” needed to deter misconduct.
For many firms, the change represents not merely a new regulator but a fundamentally different regulatory philosophy.
Why the government is acting now
The UK’s vulnerability to money laundering has been a recurring concern for years. The National Crime Agency estimates that around £100bn is laundered through or within the UK every year, often with the assistance—witting or unwitting—of professional “enablers” such as lawyers, accountants, and company service providers.
International scrutiny intensified in 2018, when the Financial Action Task Force (FATF) highlighted serious weaknesses in the UK’s AML supervision regime. Its assessment criticised the diffuse nature of oversight and urged the government to strengthen controls, particularly in the legal and accounting sectors.
Since 2017, the UK’s own national risk assessments have repeatedly classified the legal sector as “high risk” for money laundering and terrorist financing. With a fresh FATF mutual evaluation scheduled for August 2027, ministers are under pressure to demonstrate rapid and credible reform.
“The timing of this shift is no coincidence,” said Priya Giuliani, a financial crime investigator and partner at consultancy HKA. “There is real urgency for the UK to present a credible, consistent, and effective supervisory system to FATF by August 2027.”
From guidance-led to enforcement-led regulation
One of the biggest concerns for law firms is the contrast between the FCA’s enforcement style and that of the SRA. Historically, the SRA has favoured a collaborative, guidance-led approach to AML compliance, with relatively limited fining powers.
The SRA’s standard fining cap sits at £25,000, although higher penalties can be imposed if cases are referred to the Solicitors Disciplinary Tribunal. In the year to April 2025, the SRA issued 86 AML-related fines totalling £1.5m, with individual penalties ranging from £1,520 to £300,000.
By contrast, the FCA operates with significantly broader powers—and a markedly tougher track record. In the past year alone, the FCA issued six AML fines totalling £82m, with individual penalties ranging from £289,000 to a staggering £39.3m.
“While the SRA has tended to work with firms to raise standards, the FCA comes with sharper swords,” Giuliani warned. “Its enforcement toolkit is more robust, more data-driven, and far less tolerant of systemic weaknesses.”
Higher barriers to entry for law firms
Beyond enforcement, the FCA’s takeover is expected to raise the threshold for firms seeking to operate in the UK legal market. Data gathered by HKA shows that during the 2023–24 financial year, the FCA rejected 44% of the 275 applications it received from firms seeking authorisation under its remit.
By comparison, the SRA approved all 218 applications submitted by law firms during the same period.
This disparity has alarmed some in the profession, particularly smaller and boutique firms, which fear that the cost and complexity of FCA-style compliance could deter new entrants or accelerate consolidation across the sector.
“The FCA brings sharper scrutiny, broader powers, and a data-driven lens,” Giuliani said. “Legal firms must be ready.”
What law firms will need to change
For many firms, preparing for FCA supervision will require a comprehensive overhaul of AML frameworks, not just incremental tweaks. Key areas of focus are likely to include:
1. Governance and accountability
The FCA places strong emphasis on senior management accountability. Law firm partners and compliance officers can expect greater personal scrutiny, clearer allocation of AML responsibilities, and tougher consequences for failures at leadership level.
2. Risk assessments and client due diligence
Generic, template-based risk assessments are unlikely to satisfy an FCA supervisor. Firms will need to demonstrate a deep understanding of their specific risk exposure—by practice area, client type, jurisdiction, and transaction structure—and tailor their controls accordingly.
3. Data, systems, and monitoring
The FCA’s “data-led” approach means firms must be able to evidence compliance through robust systems, accurate records, and meaningful management information. Manual processes and inconsistent record-keeping will be red flags.
4. Culture and training
AML compliance will no longer be seen as a box-ticking exercise delegated to compliance teams. Firms will be expected to embed a strong compliance culture across all fee earners, supported by regular, role-specific training.
The regulator’s perspective
From the FCA’s standpoint, the expansion of its remit is a logical extension of its core mission. Steve Smart, the FCA’s executive director of enforcement and market oversight, has emphasised that tackling financial crime is already a priority for the regulator.
“Fighting financial crime is a priority for the FCA and we have experience in anti-money laundering supervision which we will bring to bear,” Smart said. “We intend to take a data-led and proportionate approach—with a focus on partnering with firms to identify and disrupt crime.”
While the FCA has sought to reassure firms that it will not adopt a purely punitive stance, few doubt that the risk of large fines and public enforcement action will rise materially.
A reshaped legal sector?
Taken together, the reforms are likely to have profound long-term effects on the UK legal market. Larger firms with established compliance infrastructures may adapt more easily, while smaller practices—particularly those operating in higher-risk areas such as conveyancing, company formation, and international private client work—may face difficult choices.
Some may exit certain lines of business altogether; others may merge or seek external investment to fund more sophisticated compliance operations. For the government, this reshaping may be an acceptable price to pay for restoring international confidence.
From a policy perspective, the move signals a clear shift: professional services firms are no longer seen merely as passive gatekeepers, but as active participants in the fight against economic crime.
What this means for clients and the wider economy
Clients of UK law firms should also expect change. More intrusive due diligence, longer onboarding times, and increased requests for source-of-funds information are likely to become the norm. While this may cause friction in the short term, ministers argue that higher standards will ultimately strengthen the UK’s position as a clean, trusted global financial centre.
With the FATF review looming, the government appears determined to show that it is serious about tackling dirty money—even if that means subjecting one of the country’s most influential professions to unprecedented scrutiny.
A clear warning shot
The designation of the FCA as AML supervisor for law firms is more than an administrative reshuffle. It is a clear warning shot to the legal sector that tolerance for weak controls is at an end.
For firms that act now—by investing in systems, training, and governance—the transition may be manageable. For those that do not, the coming years could bring sharper penalties, reputational damage, and existential risk.
As the countdown to 2027 begins, one thing is certain: the era of light-touch AML supervision for UK law firms is over.
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