UK law firms are preparing for increased scrutiny as the government moves to strengthen the City’s defenses against money laundering. The changes are being implemented ahead of a critical review scheduled for August 2027.
New Oversight for the Legal Sector
The Financial Conduct Authority (FCA) has been designated as the new anti-money laundering regulator for the legal sector. This shift is expected to bring “sharper” penalties and potentially reshape how legal businesses operate, according to industry observers.
Currently, oversight of anti-money laundering practices is divided among nine different supervisors. The consolidation of these responsibilities under the FCA is part of a broader effort to address the UK’s reputation as a destination for “dirty money.” The National Crime Agency estimates that approximately £100 billion is laundered through or within the UK annually, with law firms identified as potential enablers.
A Response to International Pressure
Concerns about the UK’s anti-money laundering safeguards were initially raised in 2018 by the Financial Action Task Force (FATF), a Paris-based global watchdog. The FATF report called for strengthened oversight, particularly within the accounting and legal sectors. The upcoming FATF review in 2027 is driving the current urgency for reform.
Priya Giuliani, a financial crime investigator at HKA, stated, “The timing of this shift is no coincidence.” She added that there is “urgency” to demonstrate a “credible, consistent, and effective supervisory system” to the FATF by the review date.
The FCA’s expanded role will encompass accounting firms and trusts, following a government review that revealed inconsistencies, duplication, and information-sharing gaps across more than 20 regulators. The FCA will assume responsibilities currently held by nine supervisors, most notably the Solicitors Regulation Authority (SRA).
What Could Change
Giuliani notes that the SRA has traditionally favored a “collaborative, guidance-led approach,” while the FCA is expected to adopt a more assertive stance with “sharper swords” to punish violations. In the year leading up to April, the SRA issued 86 fines totaling £1.5 million, while the FCA levied £82 million in fines across six anti-money laundering cases. The FCA also appears to be more selective in granting licenses, rejecting 44% of the 275 applications it received in the 2023-24 financial year, compared to the SRA’s 100% acceptance rate of 218 applications.
Steve Smart, the FCA’s executive director of enforcement and market oversight, stated that the FCA will take a “data-led and proportionate approach” and focus on “partnering with firms to identify and disrupt crime.”
Frequently Asked Questions
What prompted this change in regulation?
The change is driven by the UK’s ongoing efforts to improve its reputation in combating money laundering and to address weaknesses identified by the Financial Action Task Force (FATF) in 2018. A new FATF review is scheduled for August 2027.
How will the FCA’s approach differ from the SRA’s?
Experts anticipate the FCA will take a more assertive approach to enforcement, with potentially “sharper” penalties, compared to the SRA’s historically “collaborative, guidance-led approach.”
What is the estimated amount of money laundered through the UK each year?
The National Crime Agency estimates that £100 billion is being laundered through or within the UK every year.
As the FCA prepares to take on its new role, will law firms be able to adapt to the increased regulatory demands and potential for stricter penalties?
