UK Tightens Grip on Money Laundering — FCA Set to Oversee Legal Sector in Major Shake-Up

The UK government is set to centralize anti–money laundering (AML) supervision of the legal sector under the Financial Conduct Authority (FCA), in a move experts say could fundamentally transform law firm compliance and risk management.

Currently, AML oversight in the legal sector is fragmented across nine regulators, creating enforcement gaps that criminals have exploited. The National Crime Agency estimates that nearly £100 billion is laundered through the UK each year, with some law firms inadvertently acting as enablers.

Following a 2018 FATF review, the UK was flagged as an emerging hub for illicit financial flows, with law and accounting services deemed high-risk. With the next FATF review scheduled for August 2027, the government is accelerating reforms to demonstrate a robust supervisory framework. Financial-crime consultant Priya Giuliani noted, “The UK needs to show credible, effective oversight before 2027.”

FCA to Become the ‘Sharper Sword’ in AML Enforcement

The FCA already oversees AML compliance in banks and financial institutions, but its remit will now extend to professional services, including law firms, accountancy practices, and trust service providers.

Previously, the Solicitors Regulation Authority (SRA) managed AML for solicitors, but its penalties were limited to £25,000 per case, with larger matters referred to tribunals. Last year, the SRA issued £1.5 million in fines across 86 cases. By contrast, the FCA levied fines totaling £82 million, with individual penalties ranging from £289,000 to £39.3 million, demonstrating the heightened enforcement capability firms will face under the new regime.

Data also suggests stricter market entry: the FCA rejected 44% of 275 firm applications in 2023–24, while the SRA approved all 218 applications submitted in the same period.

Data-Driven Supervision and Stricter Compliance

The FCA’s approach relies heavily on data analytics, risk scoring, and disciplined reporting, in contrast to the SRA’s guidance-based model. FCA executive director Steve Smart emphasized a “proportionate and partnership-based” approach but warned the agency will act decisively where breaches occur.

Law firms can expect:

• Enhanced client due diligence
• Stricter reporting of suspicious transactions
• Greater transparency in internal audits and record-keeping

Experts note these changes may increase compliance costs but also enhance credibility and reduce vulnerabilities for money laundering. By 2027, the UK aims to present a legal sector that is far less susceptible to illicit financial flows, aligning with FATF expectations.