In depth: Anti-money laundering reform - what changes do solicitors want?

The prospect of regulatory reform normally has practitioners uneasily contemplating more hoops to jump through. In general, stability and the status quo trump uncertainty. 

This week, by contrast, the government offered the tantalising possibility of a reduction in what has become the heavy burden on solicitors of being seen to combat money laundering.

For bleary-eyed compliance officers and law firms writing five-figure cheques to pay off fines, a shakeup cannot come soon enough.

‘AML is the biggest regulatory burden facing law firms in 2025,’ said Paul Bennett, a partner with Bennett Briegal who advises law firms on compliance. ‘The current regime is overly complex and highly confusing: if individual solicitors do not understand the regime despite extensive training then compliance suffers.’

Before law firms consider breathing more easily, a caveat: the details are yet to be revealed.

We do know that the Treasury will introduce revised regulations by the end of this year which will be ‘clearer and more proportionate’. This pledge was slipped into a wider industrial strategy published by the government on Monday which talked up the legal sector as a vital national asset.

The signal from ministers is that while lawyers are an important safeguard for preventing money laundering, the ‘major burden’ being placed on them threatens the sector’s status as a key growth driver. The strategy paper says some regulators in professional services ‘are not consistently aligned’ with the government’s ambitions for economic expansion.

The strategy pledges to ‘explore measures to ensure occupational regulators have a clear set of streamlined duties and steers focused strongly on investment and growth, have clear processes and published timelines for growth-related decisions, and are held to account by government for their performance’.

This week alone three more firms – including a sole practitioner – have been fined between £9,000 and £23,000 for AML breaches. Some practitioners argue that SRA sanctions have become draconian for cases where no harm is actually caused. Dozens of firms have now been fined a percentage of their annual turnover after failing to implement the required risk assessment and policies. The spate of penalties has barely slowed, despite repeated warnings from the SRA about getting it right.

'Inevitably, law firms are fearful of mistakes and misunderstandings. A shift towards simplicity would help law firms and help the stated aim of supporting the professional and business services sector'

Paul Bennett, Bennett Briegal

This clampdown has hardly helped improve relations between the SRA and the profession, and has stretched the regulator’s resources to the point where it is increasing its annual budget by £16.3m. There was more than a hint of exasperation earlier this year from SRA chief executive Paul Philip, when he said basic deficiencies were still being discovered in firms’ AML arrangements. While it may have earned a reputation from solicitors as harsh and punitive, the regulator itself would also likely welcome clearer expectations and a strong signal that it can focus more on those actually facilitating money laundering.

So what would a reformed AML regime look like? Colette Best, director of anti-money laundering at Kingsley Napley, acknowledges there is a limit to how far the UK can move away from international norms. She recommends a single standard for due diligence, rather than different requirements for routine clients, high-risk countries and politically exposed persons. Removing the DBS checks for solicitors taking up managerial roles and defining the requirement for source of funds checks would also be welcome.

Best adds: ‘The vast majority of firms want to do the right thing to prevent money laundering. But the current regulations add pointless costs and delays for little benefit. Firms will want to see simple, clear regulations that actually allow a risk-based approach to thwart criminals.’

Bennett says that SRA enforcement activity over recent years has focused on those firms whose solicitors have made a small number of errors but usually without a genuine money laundering outcome.

‘Inevitably, law firms are fearful of mistakes and misunderstandings,’ he adds. ‘A shift towards simplicity would help law firms and help the stated aim of supporting the professional and business services sector.’

The Law Society believes any reforms should bring about a proportionate system and greater clarity for the sector. Society president Richard Atkinson said: ‘Legal professionals are committed to fighting financial crime, but compliance measures must be proportionate, targeted and risk-based to be effective without stifling access to justice or placing undue strain and financial cost on firms and practitioners.’

All will presumably be revealed by the end of the year. For compliance officers, that is 187 more sleepless nights at most.

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