The UK was subject to a report on its anti-money laundering controls by the Financial Action Task Force (FATF) in 2018. This resulted in a largely clean bill of health but there was some criticism of the IT systems in use in the enforcement process, and also that the supervision of the professional sector was hampered by there being too many regulatory bodies that were involved. As the UK moves towards the FATF reassessment that is now due the recent announcement that the Financial Conduct Authority (FCA) will take over the AML controls for the legal and accountancy sectors should probably be seen to be in response to this criticism.
On the subject of regulation as a whole the Government has recently expressed concerns about the increasing cost and challenges of meeting the increasing regulatory burden for business within the UK at present. A policy paper first issued in March this year, and then updated in October, stated that “the current regulatory landscape is not functioning as effectively as it should”[1]. This was followed by references to the high administrative costs that businesses face and that “whilst other countries such as Singapore and Australia have continued to improve the regulatory systems, the UK has fallen behind”.
Within the profession the change of regulator to the FCA will throw into question how law firms will fare under the new FATF regime. Better the devil you know might be one understandable reaction from many. In this respect how the FCA will respond to the regulation of professional services as opposed to banking and finance remains to be seen, but one obvious concern will be its view of privilege in relation to the taking of instructions and then the need to make suspicious activity reports to the National Crime Agency. A related concern would be the recently reported application by the SRA for recognition that it should be entitled to examine legally privileged materials held by Carter-Ruck for “regulatory purposes” only. Regardless of the outcome of that case might the FCA also claim that they should be similarly entitled to do the same as to be able to be more interventionist as Government would seem to wish it to become?
The more mundane and immediate concern for the solicitors profession is how the SRA will respond to the loss to the FCA of what has become one of its key and most expensive areas of compliance management of late. Whatever the shape and style of future regulation there will now be two major sets of regulatory fees to be paid by firms rather than just the one. Might we therefore expect to see a reduction in the fees charged for SRA supervision or will the regulator instead switch its concerns and activities to other aspects of the Standards and Regulations? Unfortunately, most will conclude that we are likely to see more regulation after the switch to the SRA rather than the same or less.
As to what the future holds a recent Gazette article by Konexo predicted the FCA’s stewardship would result it “a much more rigorous approach to client due diligence” and that this be likely “reshape not just compliance processes, but the culture of the legal profession itself”[2].
For the time being, however, all firms should take note of the SRA’s AML Annual Report. Something in the region of one in six firms were subject to a monitoring review in 2024-2025 and about a third of these were adjudged to be non-compliant with certain aspects of the regulatory responsibilities. As also reported in the Times on the 4th November the most common problems were failures to have conducted CDD or risk assessments and/or a failure to conduct training at all or validly so. Commenting on the report’s conclusions the outgoing SRA chief executive Paul Philip stated that he was proud of the regulator’s work and claimed that there had been significant progress to prevent and detect money laundering as it has continued to prioritise its AML controls. He also referred, however, to the need for “sector-wide improvement and sustained regulatory attention”.
Taking all of this into account, and regardless of what the future might hold, firms should ensure that they regularly review their AML and financial crime risk assessment reports and then update their AML manual accordingly. Any file reviews should examine the whole onboarding process and ensure that valid ID and matter risk assessments are noted on file or referred to elsewhere if there are current ID checks that will apply to that matter file. Within the Infohub see the AML materials in the ‘Compliance Zones’ tab for our ‘four in one risk assessment’ template and then the first section of part 3 of our Office Procedures Manuals for firms or for sole principals. If you would like to commission a review of your arrangements and an AML audit as required for larger firms by r.21 MLR 2017 please contact Infolegal Director Matt Moore at mattmoore@infolegal.co.uk.
[1] A New Approach to Ensure Regulators and Regulations Support Growth
[2] “A New Era for AML Supervision: Regulation and Compliance”: Ian Stott and Gregor Gottlieb. Gazette 31st October 2025