By Eloise Butterworth
Head of Risk & Compliance at HiveRisk
By Eloise Butterworth
The Government’s decision to strip the Solicitors Regulation Authority (SRA) of its anti-money laundering (AML) powers and hand them to the Financial Conduct Authority (FCA) marks a major shift in how legal services will be supervised. For law firms, it creates a new layer of regulatory compliance with multiple regulators.
The announcement, made by the Chancellor as part of a wider “blitz on business bureaucracy”, is framed as simplification. But the reality for law firms is likely to be more complex. be under no illusion, this isn’t just a rebrand. The FCA will become the Single Professional Services Supervisor (SPSS) for AML, overseeing lawyers alongside accountants and other professional advisers.
The devil will be in the detail. Firms will want clarity on how FCA supervision will interact with the SRA’s broader remit for professional conduct, reporting, and client protection. While the FCA brings deep experience of financial crime prevention, AML in legal practice is not an isolated function. It cuts across client due diligence, conflict checks, and transaction reporting – all areas where the SRA has long understood the nuances of legal work.
That understanding matters. The SRA’s approach, for all its critics and missteps, has evolved with the profession. A financial regulator’s methods may not easily translate to the complexities of legal client relationships or the professional obligations that underpin them. As I show below, this is likely to provide more complexity rather than less.
The FCA’s challenge: overlapping duties
The FCA already operates under section 333D of the Financial Services and Markets Act 2000, which gives it authority to supervise AML compliance for financial firms under the Money Laundering Regulations (MLRs). However, its current enforcement model is built around financial institutions, not legal professional privilege (LPP) or client confidentiality. When applied to law firms, that immediately creates tension.
The FCA’s approach is rules based, not principles based, and so for many firms will feel much more unforgiving than the approach of the SRA. It will be data driven with a greater focus on showing your controls, not just explaining them.
The FCA’s regulatory culture is built around transparency and disclosure – sound principles for financial institutions but more problematic in a legal context.
Reporting and privilege
The SRA has always approached reporting obligations in the context of client confidentiality and privilege, issuing practical guidance on when and how solicitors can make a report to the National Crime Agency without breaching privilege.
The FCA, by contrast, has no established framework for reconciling AML reporting obligations with legal privilege as relationships are contractual rather than fiduciary.
Likely outcome: dual reporting frameworks
In practice, law firms will probably have to report to both regulators, the FCA for AML systems and governance breaches, and the SRA for professional conduct or privilege concerns. This effectively duplicates oversight and runs the risk of double jeopardy. Clarity on this issue is going to be key.
The practical implication
For right now, nothing is changing. It is a case of continue as you are but preparation when it comes to these changes will be key. It is likely that there will need to be substantial changes to your policies, controls and procedures.
In short: the FCA knows the MLR inside out, but the SRA understands where legal privilege and regulatory compliance collide. Unless and until the two bodies work in lockstep, firms will face conflicting expectations and the biggest risk of all will be getting it wrong in both directions.
So, in my view and without enough of the detail (or rather lack of clarity around it), this is not deregulation but redistribution – and firms would be wise to prepare for a more demanding compliance landscape, not a lighter one.
