The recent announcement by British Chancellor Rachel Reeves that anti-money laundering (AML) supervision responsibilities for law firms will shift from the Solicitors Regulation Authority (SRA) to the Financial Conduct Authority (FCA), the City watchdog, represents a major regulatory change in the UK’s AML framework. This move aims to streamline AML supervision, reduce bureaucracy, and strengthen the UK’s defenses against illicit finance.
Background and Context
Since its establishment in 2007, the SRA has been the primary AML supervisor for law firms in England and Wales. Its responsibilities were notably enhanced in 2017 under the Money Laundering, Terrorist Financing and Transfer of Funds regulations (MLRs). These 2017 regulations required all law firms undertaking regulated activities to maintain risk assessments and comply with AML policies and controls, covering firms of all sizes including sole practitioners. As of October 2023, the SRA oversaw AML compliance for more than 6,000 firms, supervising over 23,000 beneficial owners, officers, and managers, with a dedicated AML staff of 34 and a budget exceeding £3 million annually.
Details of the Transfer
Announced on October 21, 2025, by Chancellor Reeves as part of a broader “blitz on business bureaucracy” to promote economic growth, the government has decided to designate the FCA as the Single Professional Services Supervisor (SPSS) for AML regulation of law firms. This decision follows a comprehensive consultation process initiated in 2023, focused on improving regulatory efficiency and effectiveness.
The FCA, traditionally responsible for supervising financial firms for AML compliance, will now see an expanded remit to supervise approximately 60,000 firms, including law sector entities previously regulated by the SRA. This consolidation is designed to foster closer coordination among supervisors, professional service sectors, and law enforcement agencies to better tackle money laundering threats.
Government Objectives and Rationale
Chancellor Reeves emphasized that the supervisory shift is intended to reduce duplicative bureaucracy faced by businesses, while enhancing the UK’s defenses against the significant and evolving risks of illicit finance. The government highlighted the importance of a risk-based, intelligence-driven approach to AML supervision, which the FCA is well-placed to deliver given its broad experience with financial institutions and AML enforcement powers.
The move also aligns with recent government reviews signaling the need for incremental improvements in the supervisory regime and improved collaboration across the regulatory landscape. The government is simultaneously advancing reforms through the Economic Crime Plan, Companies House modernization, and the Economic Crime and Corporate Transparency Bill to strengthen overall anti-crime frameworks.
Reactions and Implications
The SRA has expressed disappointment at losing its AML supervisory powers, pointing to knowledge gaps and resource challenges faced by the FCA in absorbing the new responsibilities. The SRA argued that its specialized expertise in regulating the legal profession’s AML requirements will be missed, warning that the FCA’s broader financial sector focus might dilute attention on legal sector-specific risks.
However, proponents of the change stress that the FCA’s enhanced regulatory toolkit and experience in enforcing robust compliance across diverse financial sectors will translate into stronger supervision and higher deterrence against money laundering through law firms.
For regulated firms, the transition means preparing for oversight by the FCA’s AML supervisory framework, which carries higher expectations for evidence-based compliance and the use of technological tools for risk detection as outlined in the UK’s 2025 AML reforms. Firms will need to adapt to potentially stricter scrutiny and evolving regulatory expectations to stay compliant.
Regulatory and Compliance Outlook
The expansion of FCA’s role is part of a larger strategic shift in UK AML regulation focusing on a smarter, risk-based, and technologically enabled supervisory framework. The 2025 reforms emphasize tailored sector-specific vigilance, particularly focusing on areas such as legal services, cryptoasset providers, and other high-risk sectors. The FCA’s supervisory approach aims to promote more proactive engagement, education, and enforcement activities to enhance compliance culture and protect the regulated perimeter.
The government’s approach underscores the continuing high risk of money laundering in the UK, driven by factors like global financial hub status, fraud risks, sanctions evasion, and emerging technologies. Ensuring that regulatory bodies are equipped with adequate powers, resources, and expertise is critical to countering these threats effectively.
Conclusion
The transfer of AML supervisory responsibility for law firms from the SRA to the FCA marks a significant development in the UK’s fight against financial crime. While the SRA laments the loss of its specialized role, the government and supporters contend that placing AML supervision under the FCA will reduce regulatory complexity and leverage greater expertise to strengthen the UK’s defenses against money laundering. Regulated firms must brace for change with more rigorous oversight under the FCA, alongside ongoing reforms in the AML ecosystem aiming to deliver a more responsive, risk-focused regime aligned with modern enforcement challenges.