The FCA takes control: What the transfer of AML supervision means for the UK legal sector

A seismic shift in legal sector AML supervision

The UK government has announced one of the most significant changes to the country’s anti-money laundering (AML) framework in recent years: the transfer of AML supervisory powers from the Solicitors Regulation Authority (SRA) to the Financial Conduct Authority (FCA). This decision marks a decisive shift towards a more centralised model of AML oversight and signals a tougher compliance environment for law firms and legal professionals.

For solicitors, compliance officers and firm leaders, understanding what this means in practice is critical. The FCA’s track record in financial services suggests a new era of stricter enforcement, greater scrutiny and potentially heavier penalties for breaches of AML obligations.

Why the change has happened

Under the previous regime, the SRA served as the AML supervisor for solicitors and law firms conducting “relevant business” under the UK’s Money Laundering Regulations (MLRs). The SRA was one of 22 professional body supervisors (PBSs) overseeing AML compliance across the legal and accounting sectors.

However, the UK government’s 2023 review of the AML supervisory regime found the system fragmented and inconsistent. Different PBSs applied varying standards of supervision, resulting in uneven enforcement and potential gaps in oversight. The Treasury concluded that consolidating AML supervision under a single, well-resourced regulator would improve effectiveness and public confidence in the system.

By transferring legal sector oversight to the FCA, the government is aiming to ensure that AML supervision is both consistent and robust across all professional services. The change also aligns with the government’s broader strategy to strengthen the UK’s defences against financial crime and protect the integrity of its professional industries.

Potential concerns about moving away from the SRA

The shift away from the SRA does raise some questions within the profession. The SRA has developed sector-specific expertise over many years, supervising over 10,000 law firms with an understanding of how legal practice differs from financial services.

Some practitioners may be concerned that the FCA's regulatory approach, honed in banking and investment sectors, may not fully account for the nuances of legal work, such as litigation funding, conveyancing or trust administration. There are also questions about whether the transition could create initial uncertainty or additional costs as firms adapt to a new supervisory regime.

Nevertheless, the government's view is clear: the FCA's resources and enforcement capabilities make it best placed to deliver the robust, consistent supervision that the current landscape demands.

The FCA’s enforcement philosophy

The FCA’s involvement fundamentally alters the supervisory landscape for law firms. Unlike the SRA, which primarily regulates professional conduct within the legal sector, the FCA is a financial regulator with a long history of using strong enforcement measures to drive compliance.

The FCA’s enforcement philosophy is grounded in deterrence. Its recent work with corporate finance firms provides clear examples. In its 2024 “Good and Poor Practice” review, the FCA highlighted persistent weaknesses in client due diligence, ongoing monitoring and senior management oversight, and warned that firms failing to meet standards would face enforcement action.

This signals a sharp contrast with the SRA’s previous, more collaborative approach. The FCA typically expects regulated entities to demonstrate proactive risk management, evidence-based due diligence and clear documentation of decision-making. For law firms, this means that compliance frameworks will need to stand up to far greater scrutiny, both in process and in execution.

Expectation of stricter supervision and higher penalties

The FCA’s enforcement record across financial services shows a consistent pattern of large fines for AML failings. High-profile penalties in recent years include tens of millions of pounds imposed on banks and investment firms for weaknesses in customer due diligence, beneficial ownership verification and transaction monitoring.

While the legal sector differs in nature from financial institutions, the regulator’s emphasis on deterrence suggests that law firms could see a similar trajectory. Firms that previously faced limited monetary penalties under the SRA may now find the financial consequences of non-compliance significantly higher.

Moreover, the FCA’s approach to individual accountability means that senior partners, compliance officers and Money Laundering Reporting Officers (MLROs) can expect greater personal scrutiny. The FCA’s culture of “senior management responsibility” means that oversight failures at the top of firms will not be easily excused. 

A global trend towards centralised AML oversight

The UK’s move to consolidate AML supervision reflects a wider global trend towards centralised and coordinated oversight. New Zealand, for example, is in the process of transferring all non-financial sector AML supervision to a single regulator, the Department of Internal Affairs (DIA). Similarly, Australia’s AML and counter-terrorism financing regime is managed under one body, AUSTRAC, which supervises financial institutions, lawyers, accountants and real estate professionals alike.

This international shift demonstrates a common policy objective: to eliminate fragmentation, improve consistency and close loopholes exploited by financial criminals. By reducing the number of supervisory authorities, governments can streamline guidance, unify expectations and create a level playing field across industries.

The UK’s reform follows this same logic, positioning the FCA as the central point of accountability for professional sector AML supervision.

What law firms should expect next

The transfer of responsibilities will not happen overnight. Firms can expect a transitional period during which the FCA establishes its supervisory framework for the legal sector. This is likely to include updated guidance, consultation papers and potentially new reporting obligations.

Firms should begin preparing now by reviewing their existing AML policies and procedures. Particular attention should be given to the following areas:

1. Governance and accountability: Ensure that senior management roles and responsibilities are clearly defined and documented, with the MLRO’s authority explicitly supported by firm leadership.
2. Risk assessment: Revisit firm-wide risk assessments to ensure they are comprehensive, current and evidence-based. The FCA places significant emphasis on demonstrable understanding of risk exposure.
3. Client Due Diligence: Strengthen processes for verifying clients, beneficial owners and source of funds or wealth. Documentation must be robust enough to withstand detailed FCA inspection.
4. Ongoing monitoring: Implement or enhance systems for transaction monitoring, client reviews and trigger event assessments.
5. Record-keeping and audit trails: The FCA expects meticulous record-keeping and clear auditability of AML decisions and escalations, so review your processes and storage approach.

Preparing for this cultural shift is essential. The FCA’s supervision will not only be about compliance checklists but also about whether firms can demonstrate that their AML controls are effective and proportionate to their risk profile.

A defining moment for legal sector compliance

The transfer of AML supervisory powers from the SRA to the FCA represents a defining moment for the UK legal sector. It underscores the government’s determination to close regulatory gaps and align professional supervision with the high standards expected in financial services.

For law firms, the message is clear: the era of lighter-touch AML oversight is over. The FCA will bring a new level of rigour, accountability and enforcement to the legal profession. While the transition may be challenging, it also offers an opportunity for firms to strengthen their AML frameworks and demonstrate leadership in ethical compliance.

By embracing this shift proactively, the legal profession can reinforce its role as a trusted gatekeeper in the fight against financial crime.