The anti-money laundering (AML) landscape for Solicitors in England and Wales is undergoing substantial reform, with changes that will reshape how law firms are supervised and the compliance obligations they face.
Major Supervisory Reform
In October 2025, the government announced that the Financial Conduct Authority (FCA) will become the single professional services supervisor for AML and counter-terrorism financing supervision, significantly reducing the role of the Solicitors Regulation Authority (SRA).
Under this new arrangement, all lawyers covered by the Money Laundering Regulations 2017 will have two regulators: the FCA for AML activities and their existing regulator for everything else. The approximately 6,500 SRA-regulated firms within scope of the regulations will need to adjust to this dual regulatory oversight.
Implementation, however remains subject to enabling legislation, confirmation of funding arrangements, and development of a detailed transition and delivery plan, with the timeline heavily dependent on parliamentary availability. A consultation on the supervisor’s powers is expected in November 2025.
Updated Guidance Takes Effect
New guidance from the Legal Sector Affinity Group (LSAG) was approved by HM Treasury and took effect from 23 April 2025. This updated guidance helps legal professionals and firms comply with the Money Laundering Regulations 2017 as amended.
The revised guidance emphasises that firms must take reasonable measures that are risk-based, proportionate and effective in mitigating money laundering and terrorism financing risks, with corporate structures that are unusual or excessively complex noted as specific risk factors possibly requiring enhanced due diligence.
Controversial Pooled Client Account Changes
Draft amendments introduced in September 2025 target pooled client accounts, proposing to remove the simplified due diligence option and require heightened due.
diligence obligations on lawyers dealing with such accounts. The Law Society has strongly opposed these changes.
The draft regulations would decouple pooled client accounts from the simplified due diligence framework and require holders to provide banks with information about the identity of persons whose funds are held in the account upon request. This has raised concerns about client confidentiality and privilege, as well as the practical burden on firms to evidence their compliance measures to banks.
Calls for Simplification
AML is seen by some as the biggest regulatory burden facing law firms in 2025, with an overly complex regime seen by many as highly confusing. There has been calls for clearer, more proportionate regulations that genuinely allow a risk-based approach while targeting actual money laundering rather than technical compliance failures.
The coming months will be critical as the FCA transition plans are developed and further consultations take place. Law firms should stay alert to these developments and give due consideration to how they will adapt to significant changes that seem likely to i follow in regard to both supervision and enforcement of AML rules.
Key Steps your firm can take now
We have yet to see for certain what precise changes the switch to FCA regulation od AML will mean for Solicitors. However, based on the FCA’s existing AML approach we believe there are steps Solicitors can begin to take now to prepare for this change.
1. Review and Strengthen Your AML Framework
The FCA’s approach is likely to be different to that which has been taken by the SRA. Based on recent FCA enforcement in financial services, be prepared for:
- More formal, rules-based supervision.
- Greater emphasis on senior management oversight and accountability.
- More robust audit trails and documentation requirements.
- Enhanced governance structures.
- Data-driven risk assessments.
2. Audit Your Current Compliance
Conduct a comprehensive review of your:
- Firm-wide risk assessment.
- Policies, controls and procedures.
- Customer due diligence processes.
- Record-keeping practices (risk assessment records and record keeping are likely to be an area of particular interest during or immediately following this transition).
- Staff training programmes.
- MLRO and MLCO role definitions and responsibilities.
If your practice’s approach to AML is in good shape now, it will likely make any transitions smoother and easier to implement.
3. Address Resource and Training Needs
Firms may need to update governance structures and ensure clear documentation and oversight is in place. Consider:
- Whether your compliance team is adequately resourced for implementing changes that are likely to come and the increased scrutiny that is likely to follow.
- Upskilling your MLRO and financial crime team on FCA expectations.
- Implementing more robust internal testing and audit programmes.
- Establishing clear escalation procedures to senior management.
4. Prepare for Dual Regulation
Even after the FCA takes over AML supervision, the SRA will still have the power to enforce its Principles, Standards and Regulations. The Treasury has already conceded there will be ‘a degree of dual regulation‘.
Ensure you understand (once confirmation has been made public):
- Be prepared for the need to go though a registration process with the FCA.
- Which regulator will handle what types of breaches.
- How to manage potentially conflicting requirements.
- Whether separate enforcement action could be taken by both regulators (it is anticipated the FCA will be given further powers to issue penalties, suspensions and prohibitions against Solicitors as well as the power to issue directions to them.), and public censures.
5. Plan for Pooled Client Account Challenges
Plan for and develop procedures for responding to banks’ requests for information about client account beneficiaries while protecting:
- Client confidentiality.
- Legal professional privilege.
- Your regulatory obligations.
6. Monitor Ongoing Developments
Stay informed about:
- The November 2025 consultation on FCA powers.
- Enabling legislation progress.
- Transition and delivery plan details.
- Updated fee structures and registration requirements.
- FCA registration processes once announced.
As Insurance brokers, we look to stay ahead of and keep all our clients informed on upcoming regulatory and legal changes. If you would like to discuss further, contact us here.
