Government strips SRA of anti-money laundering powers

The Solicitors Regulation Authority is to lose its anti-money laundering responsibilities, with supervision of law firms passed to City watchdog the Financial Conduct Authority. 

Chancellor Rachel Reeves announced the transfer today, as she unveiled a 'blitz on business bureaucracy' aimed at driving the government's economic growth agenda. Following a consultation that began in 2023, the government is to designate the FCA as Single Professional Services Supervisor (SPSS) for AML.

The City watchdog will carry out the new supervisory functions and 'work with the professional services sector, other regulators, and law enforcement agencies to improve the UK’s defences against money laundering'.

The SRA has held responsibility for regulating AML compliance since it was formed in 2007, but its powers were significantly strengthened by the Money Laundering, Terrorist Financing and Transfer of Funds regulations in 2017 (commonly known as the MLRs). These changes introduced the obligation on all law firms doing in-scope work to maintain and keep up to date a firm-wide risk assessment and have compliant AML policies, controls and procedures in place. This applied to all firms, even sole practitioners.

The SRA was established as the largest legal sector AML supervisor and, as of October 2023, supervised 23,275 beneficial owners, officers and managers spread across more than 6,000 firms in scope. At that point, the SRA had 34 dedicated members of staff and an AML-specific annual budget of more than £3m.

Under government pressure to prove it was ensuring compliance among law firms and solicitors, the SRA issued warnings and reminders to the profession. In its annual report for 2021/22, the SRA noted that while there had been improvements in how firms responded to their obligations, there was still a ‘very significant proportion of firms’ with risk assessments that were not compliant.

Many firms failed to assess AML risks, either at firm level or client/matter level, and the SRA also observed that a number of firms had submitted a false declaration when asked if they had a compliant firm wide AML risk assessment in January 2021. Coinciding with the SRA extending its fining powers to £25,000, the last two years has featured a substantial increase in the rate and severity of fines being handed out to firms. As well as enforcement, the SRA's AML supervision has risen significantly in the last five years, with 864 'pro-active engagements' with law firms in 2024/25 compared to 253 in 2020/21.

Commenting on the transfer of responsiblities to the FCA, the Law Society warned that the government must carefully manage the cost implications of implementing an SPSS model and 'avoid increasing regulatory burdens that could undermine the competitiveness of our world-beating legal services sector'.

President Mark Evans added:  'In its new role, the FCA should have a greater focus on proportionate risk-based regulation, rather than blind compliance. There must also be a careful transition between the SRA and the FCA, so that cost and complexity risks are mitigated for our members and their clients. It is vital that representative bodies, such as the Law Society, continue to play a central role in shaping and contributing to legal sector-wide guidance.

'Whilst we see significant challenges and would not have chosen this route, the Law Society stands ready to work with the government and the FCA as it implements the SPSS model. We will work to ensure our members are not adversely affected by the changes to the AML supervisory regime and that there is an informed understanding of the sector and levels of risks.'

Other measures announced by the chancellor today include:

• Increasing size thresholds for corporate reporting and cutting duplicative requirements, meaning lighter-touch requirements for up to 44,000 medium-sized private companies and around 7,000 subsidiary companies who will no longer be required to produce Strategic Reports.   

• Removing the need for any company to submit a directors’ report to Companies House.

• Digital verification of planning documents, speeding up approvals for local projects.

• An online register of underground pipes and cables to prevent length and unnecessary delays caused by accidents.

• Less frequent data returns for thousands of banks, insurers and asset managers, with the FCA scrapping lower-value returns and the Prudential Regulation Authority cutting the number of times firms need to update financial reports.