Law firms across the United Kingdom are preparing for a significant regulatory upheaval as the government moves to appoint the Financial Conduct Authority (FCA) as the new anti-money laundering watchdog for the legal sector. This shift is expected to bring harsher penalties and could fundamentally reshape the industry's compliance landscape.
A Unified Front Against Dirty Money
The decision forms a crucial part of the government's strategy to dismantle the UK's reputation as a global hub for illicit finance. Currently, oversight is fragmented across nine separate supervisors, including the Solicitors Regulation Authority (SRA). This disjointed system will now be consolidated under the FCA's remit. The move follows persistent criticism, notably a 2018 report from the global Financial Action Task Force (FATF), which highlighted major weaknesses in the UK's defences against money laundering.
The scale of the problem is vast. According to the National Crime Agency, an estimated £100bn is laundered through or within the UK every year, with law firms and other professional services sometimes acting as unwitting or complicit enablers. Consequently, the UK's own national risk assessment has consistently classed the legal sector as "high risk" since 2017.
Sharper Swords and Stricter Scrutiny
The transition from the SRA to the FCA signals a move towards a more rigorous enforcement regime. Financial crime expert Priya Giuliani of consultancy HKA notes that while the SRA has traditionally employed a "collaborative, guidance-led approach," the FCA comes armed with "sharper swords" to penalise failures.
The difference in enforcement power is stark. In the year to April, the SRA issued 86 fines totalling £1.5 million under its anti-money laundering powers. Its largest single fine was £300,000. In contrast, the FCA issued just six anti-money laundering fines last year, but they ranged from £289,000 to a staggering £39.3 million, summing to £82 million. The FCA also has a notably tougher stance on authorisation: it rejected 44% of applications from firms in the 2023-24 financial year, whereas the SRA accepted all 218 that applied.
The Race to the 2027 Deadline
The timing of this regulatory overhaul is no accident. The UK is facing a fresh evaluation by the FATF in August 2027, creating urgent pressure to demonstrate a "credible, consistent, and effective supervisory system." The government's own two-year review preceding this change found inconsistent oversight, duplication between regulators, and gaps in information sharing with law enforcement.
Steve Smart, the FCA's Executive Director of Enforcement and Market Oversight, stated: "Fighting financial crime is a priority for the FCA and we have experience in anti-money laundering supervision which we will bring to bear. We intend to take a data-led and proportionate approach – with a focus on partnering with firms to identify and disrupt crime."
For law firms, the message is clear. The era of lighter-touch regulation is ending. The incoming regime demands robust, data-driven compliance systems as the FCA prepares to wield its broader powers and impose significantly larger fines to cleanse the UK's financial reputation.
