The UK government’s decision to strip the Solicitors Regulation Authority (SRA) and other professional bodies of their anti-money laundering (AML) supervisory roles and hand oversight to a single regulator – most likely the Financial Conduct Authority (FCA) – has been met with widespread concern from across the legal and accountancy sectors.
Presented as a response to criticisms raised in the 2022 FATF evaluation, the move is positioned by the Treasury as a way to address long-standing inconsistencies in supervision and improve effectiveness in tackling economic crime. However, the reaction from within the legal profession has been overwhelmingly negative, with solicitors’ regulators and representative bodies warning that the changes risk weakening AML oversight, undermining legal professional privilege (LPP), and creating unnecessary cost and confusion.
SRA Removed as Legal Sector AML Supervisor
Of most direct relevance to solicitors firms in England and Wales is the removal of the SRA from its current position as one of the UK’s 25 professional body supervisors under the Money Laundering Regulations. The government argues that a single regulator with dedicated enforcement powers will reduce duplication, drive consistency, and ensure stricter compliance.
Yet critics point out that the FCA, although well-established as a financial services regulator, lacks the knowledge, experience and expertise to supervise law firms effectively. In particular, the FCA has no practical experience of how AML duties interact with client confidentiality, legal professional privilege, and the specific regulatory framework in which solicitors operate under the SRA Standards and Regulations. The Government’s reform response document [1] barely acknowledges these concerns, offering little reassurance to a profession already navigating complex and overlapping compliance duties. Indeed the only specific reference is at paragraph 2.25 which acknowledges that:
“This reform will also mean some firms, for instance, legal service providers, are regulated for AML/CTF purposes by the FCA, and for professional conduct and other matters by their existing PBS (for instance, the SRA). Where this happens HM Treasury and the FCA will work with PBSs to minimise duplication in registration processes, fee payments, and other administrative matters.”
Opposition from Across the UK Legal Landscape
The Law Society of England and Wales, in its guidance entitled “Changes to the UK anti-money laundering supervisory regime” [2], expressed reservations about the change stating that the FCA must “have a greater focus on proportionate risk-based regulation, rather than blind compliance.” The Law Society went on to warn that the government must carefully manage the cost implications of implementing a single supervisor model and ‘avoid increasing regulatory burdens that could undermine the competitiveness of our world-beating legal services sector’. Law Society president, Mark Evans, is reported as stating that “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 of Scotland was even more outspoken, describing the reforms as “unnecessary and potentially damaging” and predicting a rise in costs for no discernible AML benefit. David Gordon, the Convener of the Law Society of Scotland’s Regulatory Committee, said[3]:
“We are frustrated and disappointed with this decision, which imposes a finance sector focused AML regulator on law firms and all other professional services. It also flies in the face of other changes made here in Scotland which actually granted the Law Society new and strengthened regulatory powers over law firms”.
It raised particular concerns about imposing a UK-wide regulatory model on a devolved legal system, stating that Scotland’s independent legal sector could be undermined by the move. The Society had previously rejected proposals[4] for a single UK-wide AML supervisor and in an article dated 21 September 2023 had said that “a one-size fits all approach would be a “regressive step” in efforts to combat economic crime”.
Concerns from the Accountancy Sector
Accountancy bodies, too, have pushed back. The Institute of Chartered Accountants in England and Wales (ICAEW) criticised the proposed model with Parjinder Basra, Chair of the ICAEW Regulatory Board, stating that[5]:
“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.”
It noted that compliance burdens were already significant under the current regime, and voiced concern that the FCA’s more punitive approach to regulation may lead to disproportionate penalties without meaningful reductions in risk.
The Institute of Chartered Accountants of Scotland (ICAS) echoed this opposition, warning that replacing specialist professional body supervision with an arms-length agency like the FCA would likely weaken sector-specific compliance and remove the nuanced understanding that current supervisors bring to complex cases. Chief Executive Bruce Cartwright commented[6]:
“We are surprised that the government has decided to transfer AML/CTF supervisory functions to the FCA. ICAS, alongside other professional bodies, has made a significant investment in supervision over recent years, with evidence to support a corresponding increase in effectiveness. As set out in our response to the consultation, while we agree that the current approach could be improved, we believe that the better course of action would be to maintain progress through evolution of the existing supervisory framework”.
Key Professional Risks: LPP, Conflicts, and Fragmentation
From a legal compliance perspective, one of the most troubling aspects of the proposed changes is the tension between FCA supervision and the preservation of legal professional privilege. The SRA has long accepted that solicitors must strike a careful balance between regulatory compliance and client confidentiality – something enshrined in both the SRA Code of Conduct and professional ethics more generally. The FCA, by contrast, has no such tradition and is unlikely to give LPP the same weight.
Moreover, the overlap between AML duties and other areas – particularly sanctions compliance, proceeds of crime reporting, and the handling of confidential client matters – requires a nuanced, case-by-case approach. The risk is that solicitors could find themselves subject to conflicting obligations under the FCA’s regime and the SRA’s rules. The potential for regulatory friction is high, particularly in areas such as risk assessment, source of funds enquiries, and reporting obligations where legal, ethical, and procedural standards already interact in complex ways.
Sheila Kumar, chief executive of the Council for Licensed Conveyancers, which will also lose its AML role, was reported in Legal Futures as saying:
“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”
Who Gains – and at What Cost?
The danger of course is that the Government’s aim to create a more “streamlined” regime may, in reality, simply result in a bloated and bureaucratic supervisory model detached from the realities of legal practice. Many law firms will rightly question whether a centralised AML supervisor with no experience of client engagement, retainer management, or privilege issues is capable of delivering proportionate and effective oversight.
Furthermore, the likely increase in supervision costs – borne directly by firms – is of considerable concern. The Treasury’s own consultation responses highlight fears across the professions that costs will rise significantly, with little clarity on how enforcement thresholds, sector-specific guidance, or appeals mechanisms will work in practice. Unlike the SRA, which is already embedded in the legal ecosystem and maintains ongoing relationships with regulated firms, the FCA may struggle to deliver meaningful engagement, particularly for smaller firms and sole practitioners. The net result may simply be that in an attempt to address one problem, the Government will merely have exacerbated another and made continuing practice by smaller firms yet more difficult. Add to this increased regulatory burdens from data complaints processes, revised corporate liabilities, attacks on LLP dividend tax breaks, proposals to require conveyancers to register with HMRC and all of the other proposed regulatory moves, and it is not fanciful to imagine a day when small law firms serving the needs of local communities may become a thing of history. So much for Rachel Reeves so called “blitz on business bureaucracy”.
Looking Ahead
Although the government has not yet confirmed a transition timetable, the reform will require new legislation, likely during the 2025–26 parliamentary session. In the meantime, the legal profession remains under SRA supervision and must continue to comply with current AML obligations, including the LSAG guidance and sector-specific red flags. But uncertainty is already being felt in compliance departments, risk assessments, and strategic planning.
Whether this centralisation will deliver a more effective AML regime remains to be seen. What is clear, however, is that removing supervision from the SRA is not a neutral administrative change – it represents a fundamental shift in the way legal compliance is understood and enforced in the UK. For many in the profession, that shift is one in the wrong direction.
[1] https://assets.publishing.service.gov.uk/media/68f609dc2f0fc56403a3d0c7/AML_Supervision_Reform_Response_Document_FINAL.pdf
[2] https://www.lawsociety.org.uk/topics/anti-money-laundering/uk-anti-money-laundering-supervisory-regime
[3] https://www.lawscot.org.uk/news-and-events/law-society-news/uk-government-proposals-to-reform-aml-add-cost-without-benefit-for-scotland/
[4] https://www.lawscot.org.uk/news-and-events/law-society-news/law-society-rejects-proposals-for-single-uk-wide-anti-money-laundering-supervisor/
[5] https://www.icaew.com/insights/viewpoints-on-the-news/2025/oct-2025/handing-aml-supervision-to-fca-will-increase-costs-for-business
[6] https://www.icas.com/news-insights-events/news/regulation/government-announces-major-shake-up-of-aml-supervision