UK law firms are facing growing scrutiny over their anti-money laundering (AML) frameworks, as legal regulators and government bodies increasingly express concern about whether the current supervisory model is robust enough to take financial crime.

This has culminated in the Government announcing late last year that it intends for the Financial Conduct Authority (FCA) to take over supervision from the Solicitors Regulation Authority (SRA) and other professional bodies.

The proposed move forms part of the government’s wider efforts to  improve the UK’s defences to financial crime, has renewe4d concern across the legal and professional services sectors.

The proposed transition follows government recognition that oversight of AML compliance is fragmented and inconsistent, with HMRC, the SRA and no less than 22 sectoral supervisors (spanning accountancy organisations such as the ACCA, ICAEW, ICAS and legal bodies including the Law Society, Bar Council and CILEx Regulation) currently acting as AML supervisors for the accountancy and legal sectors.

Professional body supervisors are set to be replaced by a single FCA‑led supervisory regime to supervise legal, accountancy, and trust and company service providers (TCSPs) – the Single Professional Services Supervisor (SPSS).

The Government initiated a consultation on the proposals.  That consultation cloed on 24 December, and the outcomes are awaited.

Concerns from professional bodies

Leading professional bodies have expressed serious reservations about the FCA’s potential new role, many of which reflect concerns already shared by firms on the ground.

The Law Society of England and Wales, the Law Society of Scotland, and the Bar Council have highlighted potential risks, including:

• Increased regulatory burden and compliance costs, particularly for smaller firms.
• Sharper enforcement powers compared to the SRA’s guidance-led approach. The SRA capped fines at £25,000, whereas the FCA has issued fines up to tens of millions of pounds.
• Potential threats to legal professional privilege and client confidentiality, given the FCA’s wider remit.
• The move to one new model for all professional service firms risks losing sector-specific expertise and could reduce the efficacy of supervision
• The lack of clarity where AML allegations are mixed with other allegations e.g. misuse of a client account.

The concern isn’t restricted to the legal profession alone – professional bodies from outside the legal sector – such as the Association of Chartered Certified Accountants – have warned that transferring AML supervision to the FCA risks firms facing “dual supervision and dual fees,” as they will still answer to their professional body for ethical standards while also meeting potentially intrusive FCA fit‑and‑proper requirements, adding regulatory complexity and cost.

Solicitors’ perspectives

Solicitors are bracing for what could be a more  demanding and data-driven supervisory environment. HKA, a global consultancy in risk mitigation  notes that the FCA rejected 44% of firm applications to operate in 2023–24, while the SRA accepted all applicants. Firms fear that the FCA’s data-driven and risk-based approach, combined with its broader powers to investigate and intervene, could disrupt normal business operations.

Many law firms have expressed unease about the FCA’s proposed “fit and proper” tests for beneficial owners, operators, and managers (BOOMs). These checks are more extensive than current SRA requirements, and non-compliance could result in criminal liability or forced divestment of ownership stakes.

It should be noted that under the proposals the FCA will not become the sole AML regulator, since HMRC and the Gambling Commission will retain their AML supervisory roles.  Therefore, there remains scope for difference in regulatory approaches, although it is to be expected that these two other bodies will seek to follow the FCA approach.

The Treasury consultation: a warning shot, not a deadline

HM Treasury ran a consultation on the FCA’s expanded AML powers for professional services, which closed on 24 December 2025. The consultation outlined proposals including:

• Mandatory registration of all AML/CTF in-scope firms.
• Public registers of supervised firms.
• Extension of investigation and enforcement powers to the FCA.
• Fit and proper tests for BOOMs and senior management.
• Cost recovery through FCA fees charged to supervised firms.

Whilst the consultation closed quietly over the festive period, firms should not mistake this for urgency in timing.  Any changes will take several years to implement, providing firms with a valuable and finite window to get their house in order.

We await the outcome of the consultation with interest – expected early-Spring time.

Key changes and industry warnings

If implemented, the FCA’s approach represents a step-change in AML supervision:

• Expanded enforcement powers mean higher fines and stronger interventions.  Views differ on whether this is appropriate: is it desirable that SRA-regulated firms should have lesser requirements than their FCA-regulated counterparts?
  Skilled person reviews and directions could require firms to overhaul systems or halt high-risk practices. The FCA has power to issue ‘prohibition notices’ which effectively close down some or all of a business.
• Whistleblowing responsibilities will be clearly directed to the FCA, rather than handled internally.

Experts warn that the FCA’s methods will be more intrusive than the SRA’s guidance-led style, and firms must adapt to avoid compliance failures. As Priya Giuliani,  a Partner at HKA, notes: