The legal profession in the United Kingdom is raising alarm over proposed changes to anti-money laundering (AML) regulations that could impose significant and potentially unwieldy compliance burdens on solicitors. The Treasury’s recent amendments and consultations on the Money Laundering Regulations (MLRs) have sparked concern among solicitors’ representatives and industry observers, who fear the reforms may inadvertently complicate AML duties rather than simplify them.
Background: AML Regulations and Solicitors’ Role
Anti-money laundering regulations are a critical part of the UK’s efforts to combat financial crime and terrorist financing. Since the Money Laundering Regulations 2017, solicitors and law firms have been subject to detailed AML compliance obligations, including client due diligence (CDD), ongoing monitoring, and reporting suspicious activities. The regulations aim to prevent the legal sector from being exploited for illicit financial flows.
While the AML rules are vital, many in the legal community have voiced concerns about the disproportionate burden the current rules place on solicitors and smaller legal practices. The complexity and prescriptive nature of compliance have been cited as challenges that potentially divert valuable resources from client service and legal work.
Recent Treasury Amendments and Solicitors’ Concerns
HM Treasury has been actively reviewing the Money Laundering Regulations through consultations and technical amendments. A prominent proposal under scrutiny involves changes to the handling of pooled client accounts (PCAs), commonly used by solicitors to hold funds on behalf of multiple clients.
The Treasury’s draft regulations aim to implement reforms announced in July 2025 to improve the regime and increase the supply and accessibility of PCAs. However, the changes decouple PCAs from the simplified due diligence (SDD) framework, requiring banks to take “reasonable measures” to understand PCA purposes and assess risks, then impose necessary controls.
Solicitors’ representatives warn that these provisions could lead to “significant and uncertain compliance burdens” that might not only be unfair and unworkable but could unintentionally reduce access to legal services by limiting PCA provision by banks. The Law Society of England and Wales stated that the amendments “do not enhance the effectiveness of efforts to combat money laundering” and conflict with the government’s stated policy of reducing unnecessary burdens.
John Binns, a fraud partner at BCL Solicitors, critically noted that it is “difficult to understand how HM Treasury believes these changes would encourage or increase the provision of PCAs, or convincingly reduce regulation,” given that the previous rules already permitted application of SDD to PCAs.
The Law Society recommended retaining the option to apply SDD to PCAs where risk assessments support it and reaffirming the government’s commitment to a “risk-based and proportionate” AML framework. They also called for legislative clarifications to permit disclosures “by law” for professional conduct without breaching client confidentiality and requested accompanying guidance to encourage transparency with clients.
Wider AML Reform Proposals and Solicitors’ Feedback
HM Treasury’s 2024 consultation response outlined reforms intending to recalibrate the UK’s AML framework towards a more proportionate and risk-based approach. Key proposals include narrowing enhanced due diligence triggers, restricting high-risk third countries as per the FATF list to Iran, Myanmar, and North Korea, and issuing clearer guidance on when source of funds checks are “necessary.”
These changes aim to reduce unnecessary regulatory burdens and enhance AML effectiveness. The government plans to introduce a draft statutory instrument for Parliament by the end of 2025. The Solicitors Regulation Authority (SRA) and other AML supervisors are coordinating to update sector guidance accordingly.
Despite these positive steps, some legal sector stakeholders feel the measures do not go far enough and that certain burdens remain overly heavy, especially concerning PCAs and reliance mechanisms. Regulation 39, which governs when solicitors can rely on another party to conduct due diligence, still poses possible criminal liability risks, deterring its wider use and thus increasing compliance workloads.
Industry Reaction and Calls to Treasury
The Law Society’s President Richard Atkinson acknowledged the government’s recognition of “disproportionate burdens current AML regulations place on law firms, particularly smaller practices.” However, he urged the government to adopt a proportionate system with greater clarity tailored to the legal sector’s needs.
The Law Society described the Treasury’s refusal to amend criminal liability concerns surrounding reliance mechanisms as a “missed opportunity” to foster more efficient compliance practices.
Further, concerns have been raised about the breadth of banking sector provisions in the AML reforms and their unintended consequences. Solicitors argue that without proper risk-based application of due diligence, the reforms may push banks to restrict PCA services, limiting solicitors’ ability to hold client funds safely and transparently.
Recent Enforcement and Penalties Highlight AML Risks
The legal sector has also experienced rising scrutiny from the Solicitors Regulation Authority in AML compliance. In 2025, notable law firms such as Simpson Thacher & Bartlett LLP and Taylor Vinters faced substantial fines (£300,000 and £172,934 respectively) for AML failures including inadequate firm-wide risk assessments and failure to identify Politically Exposed Persons (PEPs).
These enforcement actions underscore the importance of effective AML controls but also illustrate the challenges faced by law firms in meeting complex regulatory demands without excessive operational impact.
Government Acknowledgment and Forthcoming Changes
In July 2025, the UK government acknowledged that AML regulations pose a “major burden” on professional business service firms and promised reforms to improve effectiveness while ensuring proportionality. The Professional and Business Services Sector Plan from the government confirmed plans to promote digital identity solutions to facilitate AML checks.
The response signals a commitment to clearer, more coherent AML rules designed to safeguard the UK’s reputation against illicit finance risks without imposing unnecessary friction on legitimate business activities, including legal services.
The ongoing dialogue between solicitors, the Treasury, and regulatory bodies reflects the balancing act required between robust anti-money laundering measures and ensuring legal professionals can operate efficiently. While reform proposals from HM Treasury show some progress toward risk-based and proportionate regulations, solicitors continue to press for further reconsideration of measures that could translate into extra burdens, particularly concerning pooled client accounts and reliance on third-party due diligence.
As the government moves to finalize the draft statutory instrument and update guidance by late 2025, law firms should stay vigilant and prepared to adapt to evolving AML obligations. Meanwhile, stakeholders insist that transparency, proportionality, and clarity remain central to the success of the UK’s AML framework in protecting the financial system without stifling essential legal services.