The FCA takes over the SRA’s anti-money laundering role

The legal and regulatory landscape is shifting once again. In a move that marks one of the most significant changes to legal sector regulation in over a decade, the Solicitors Regulation Authority (SRA) is set to lose its AML supervisory responsibilities. Any future oversight of law firms will be transferred to the Financial Conduct Authority (FCA), the governing body in charge of regulating the financial services industry in the UK.

This change follows an announcement from Chancellor Rachel Reeves as part of the government’s wider “blitz on business bureaucracy” initiative.

Michael Shaw, Head of Professional Services at Red Flag Alert, talks us through these once in a generation changes.

The end of an era for the SRA’s AML role

Since its formation in 2007, the SRA has been responsible for regulating law firms’ AML compliance. Its remit grew significantly after the MoneyLaundering, Terrorist Financing and Transfer of Funds Regulations 2017(MLRs) introduced firm-wide AML obligations for all in-scope practices, including sole practitioners.

In recent years, the SRA established itself as the largest legal-sector AML supervisor, and in 2023 had 23,275 beneficial owners, officers, and managers spread across more than 6,000 firms.

The regulator has also adopted a more assertive approach to enforcement, particularly after its fining powers were extended to£25,000. AML supervision activity has increased sharply, rising from 253proactive engagements with law firms in 2020/21 to 864 in 2024/25. This period has also seen a notable uptick in penalties for firms failing to maintain adequate AML risk assessments or for making false declarations.

However, in recent months it had faced criticism due to a series of failures. Independent reviews of theSRA’s mishandling of the SSB Group and another major firm, Axiom Ince, found the SRA had failed to act adequately, effectively and efficiently. As a result of an independent review, the SRA issued a full apology and accepted all of the recommendations.

Despite some issues, this transfer of responsibilities away from the SRA certainly represents a major realignment. One that could reshape how legal firms are monitored and supported in meeting theirAML obligations.

A new “Single Professional Services Supervisor”

The UK government announced this change following a consultation launched in July 2023 to streamline AML supervision across the professional services sector. Under the new framework, the FCA will move into a position of the Single Professional Services Supervisor (SPSS) for AML, consolidating oversight that was previously distributed across multiple regulators. Moving forward, the FCA will have oversight of approximately 60,000regulated firms, including Legal Service Providers (LSPs), Accountancy ServiceProviders (ASPs), and Trust and Company Service Providers (TCSPs).

The FCA will work with professional bodies, regulators, and law enforcement agencies to “improve the UK’s defences against money laundering,” aligning the legal sector with the broader financial services approach to risk-based supervision and data-driven compliance.

Reactions from the profession

The Law Society has urged the government to manage the transition carefully to avoid unnecessary cost or complexity.

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."

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said:

“We recognise the benefits of an improved regime for anti-money laundering supervision. These changes will simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime. 

TheFCA will work closely with the Government, the Office for Professional BodyAnti-Money Laundering Supervision (OPBAS), Professional Body Supervisors, HMRC, the firms we will be supervising and others, as we work together to equip theUK to better fight financial crime. We can draw on our extensive expertise inthis area to facilitate a smooth transition and ensure effective regulation.

'The new regime will create enhanced opportunities for collaboration with key partners, including law enforcement, to tackle money laundering.”

Marc Williams, CRO at Red Flag Alert, said:

"As the regulatory environment for law firms undergoes one of its most significant transformations in decades, the transfer of AML supervision from the SRA to the FCA represents both a challenge and an opportunity. Law firms will need to adapt quickly to a more data-driven, financial services-style approach to compliance. At Red Flag Alert, our experience supporting FCA-regulated clients means we’re ready to help legal professionals navigate these changes with confidence, ensuring they remain compliant while embracing new possibilities for efficiency and risk management in this new era."

The bigger picture: Deregulation and economic growth

The move sits within a broader package of reforms aimed at simplifying business regulation and promoting economic growth. Other measures announced by the Chancellor include:

• Raising thresholds for corporate reporting, easing requirements for up to 44,000 medium-sized private companies
• Removing the need for directors’ reports to be submitted to Companies House.
• Launching an online register of underground infrastructure to reduce project delays.
• Cutting data return requirements for financial institutions through reduced FCA and PRA reporting obligations.

Together, these initiatives form part of a government-wide effort to reduce red tape and “get Britain building and growing again.”

What does this mean for Red Flag Alert’s legal customers?

For our customers, there is no need to take any immediate action. Our systems and processes have been serving FCA regulated firms for more than twenty years.

The immediate question for legal professionals is how and when AML supervision will transition to the FCA. Firms should expect:

• A period of regulatory overlap and consultation between the SRA and FCA.
• Potential  changes in reporting requirements, data collection, and audit  expectations
• A likely shift towards data-led, financial-style supervision, reflecting the FCA’s established methodology.

In the meantime, law firms should maintain focus on existing AML obligations under the MLRs, ensuring that their firm-wide risk assessments, training programmes, and record-keeping remain fully compliant.

The FCA’s new role as AML supervisor for the legal sector marks a fundamental regulatory shift, one that aims to strengthen theUK’s anti-money laundering defences while reducing fragmentation across professional services.

Now that the FCA have supervision, it’s fair to say that more visits are likely and penalties will be more significant. For now, firms should stay alert, stay compliant, and prepare for a new era of AML supervision.

Find out more

Do you want to find out more about the SRA changes, and how law firms will continue to operate their compliance requirements in the wake of these significant disruptions?

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