The FCA are on their way- are you ready?
Our consultant Andrew Clarke shares his thoughts on the recent government announcement that the Financial Conduct Authority will take over responsibility for supervision of the legal sector for anti-money laundering purposes.
For several years, cpm21 has maintained an Anti-Money Laundering (AML) training course within the portfolio called ‘The SRA are on their way: are you ready?’. This title was strategically chosen to reflect the heightened regulatory oversight following the 2018 establishment of the Office for Professional Bodies Anti-Money Laundering Supervision (OPBAS) [1] and the implementation of the 2017 Money Laundering Regulations. Consequently, the SRA faced increased scrutiny regarding its own supervisory efficacy. Prior to that point, the approach could only be described, and generously, as a ‘light-touch’ regime. Firms have since navigated a more proactive regulatory landscape, characterised by a marked increase in both in-person audits and comprehensive remote desktop compliance reviews.
This new oversight approach revealed a sobering reality: compliance across the sector was generally weak. The SRA’s Anti-Money Laundering Visits 2019-2020 [2] report found that matter risk assessments were absent in 29% of files, while the source of funds was inadequately checked, or ignored entirely, in 21% of cases.
It is worth noting that conveyancing services and real estate transactions had been regulated activities in the UK since 2004 [3].
On October 21, 2025, the UK Government announced they were designating the Financial Conduct Authority (FCA) as the Single Professional Services Supervisor (SPSS) for the legal and accountancy sectors. This marks a seismic shift in AML oversight. In response, the SRA expressed disappointment, asserting that the move fails to recognise their ‘significant progress in recent years’ regarding proactive and targeted AML supervision [4].
The landscape of AML supervision is shifting, and law firms may soon face a regulatory rigor previously reserved for the banking sector.
In a recent forum I hosted with staff from across UK banking services, the consensus regarding this shift was blunt: “It’s about time; they’ve had it easy for too long.” That is probably not the view reflected by those of you reading this who have experience of an SRA audit! However, it highlights a perceived ‘supervisory gap’ between legal and financial services.
A difference lies in the FCA’s investigative style. Several forum participants with experience in FCA-regulated environments noted that as well as considering high-level systems, FCA supervisors frequently conduct ‘spot-check’ interviews. They might randomly select a staff member and ask point-blank: “What specific steps would you take if you felt that a client’s activity may be money laundering, or you suspected a colleague’s relationship with a client was becoming inappropriate?”
For management, these moments are the ultimate test of compliance culture. Have they ensured that every employee, from junior staff to senior partners, adopts the firm’s whistleblowing policy and Suspicious Activity Reporting (SAR) procedures? As we move toward a unified supervisor, the ‘fingers crossed’ approach to staff interviews will no longer suffice.
Whether partner, money laundering compliance officer (MLCO), money laundering reporting officer (MLRO), or fee earner, I believe we can all expect an increased level of scrutiny and practical oversight.
A critical, yet frequently overlooked, shift in the regulatory landscape is the escalation of enforcement following non-compliance. While the FCA possesses powers to fine and publicly censure firms, analogous to the SRA, they have an additional tool that remains under-discussed: the capacity to initiate criminal prosecutions under the Money Laundering Regulations 2017. For failures deemed serious, systemic, or deliberate, the FCA is well positioned to move beyond civil penalties toward criminal proceedings. This transition marks a significant pivot from ‘the cost of doing business’ notion to genuine personal and corporate accountability.
The first criminal prosecution under MLRs 2017 was in 2021 when NatWest bank was fined over £264 million following convictions for three offences of failing to comply with money laundering regulations [5]. In this case, it was proven that money laundering had actually occurred through the bank, and that the bank failings allowed the money laundering to take place. In sentencing, the judge at Southwark Crown Court said:
‘….it must be borne in mind that although in no way complicit in the money laundering which took place, the Bank was functionally vital. Without the Bank – and without the Bank’s failures – the money could not be effectively laundered.’
Given previous convictions where legal practitioners were found to be ‘professional enablers’ in their client criminality, firms must appreciate that times are changing. A criminal investigation by the FCA is not merely a possibility in these scenarios; it represents an existential threat to a firm.
Finally, the issue of professional conduct warrants close scrutiny. The FCA’s remit will be strictly limited to AML/CTF compliance. It will not be responsible for broader professional standards, conduct, or qualifications in the legal sector. This fragmentation risks a two-tier approach to breaches of professional conduct, where the FCA’s disciplinary rigour significantly outpaces that of the SDT.
We have already witnessed the SRA test the boundaries of the SDT’s leniency in the Dentons matter [6]. In contesting the tribunal’s findings, the regulator maintained that the firm’s failures transcended simple inadvertence, arguing instead that they constituted serious professional misconduct necessitating a more stringent sanction. In March 2025, the High Court allowed the SRA’s appeal, overturning the SDT’s decision. Although, in a latest development, Dentons was granted permission to take this case to the Court of Appeal, with a hearing scheduled for March 2026.
While the government consultation concluded on 24th December 2025, the official stance remains that implementation will ‘inevitably take several years.’ The core decision is finalised, the FCA will replace the SRA, we now await the finer details. The specific mechanisms for delivery and the extent of necessary legislative reform have yet to be fully articulated.
As a proud AML geek (dedicated practitioner), I will be watching these developments with keen interest.
[1] https://www.fca.org.uk/about/how-we-operate/who-work-with/opbas
[2] https://www.sra.org.uk/sra/research-publications/anti-money-laundering-visits-2019-2020/
[3] The Money Laundering Regulations 2003- https://www.legislation.gov.uk/uksi/2003/3075/regulation/2
[4] https://www.sra.org.uk/news/news/sra-update-145-aml-supervision-change/
[5] https://www.fca.org.uk/news/press-releases/natwest-fined-264.8million-anti-money-laundering-failures
[6] https://www.sra.org.uk/consumers/solicitor-check/447523
