PM’s anti-corruption champion backs AML supervision switch

The UK government is moving to consolidate anti-money laundering (AML) supervision for the legal sector under the Financial Conduct Authority (FCA), a significant shift from the current fragmented system involving the Solicitors Regulation Authority (SRA) and other professional bodies. This decision, strongly endorsed by the Prime Minister’s anti-corruption champion, Baroness Margaret Hodge, aims to create a more consistent, robust, and effective regulatory framework to combat economic crime. The transition, which is part of broader reforms following concerns about the efficacy of existing supervision, is expected to bring increased scrutiny and potentially higher penalties for non-compliance, requiring legal practitioners to proactively enhance their AML systems and controls.

The landscape of anti-money laundering (AML) supervision for legal professionals in Great Britain is on the cusp of a fundamental transformation. In a move signalling the government's intensified commitment to combating economic crime, the Financial Conduct Authority (FCA) is set to become the single professional services supervisor for AML activities within the legal sector. This significant policy shift, announced in October 2025, will see the responsibilities currently held by various professional bodies, most notably the Solicitors Regulation Authority (SRA), transferred to the FCA.

The decision has garnered strong backing from influential figures, including Baroness Margaret Hodge, the Prime Minister’s anti-corruption champion, who has publicly endorsed the switch. Her support underscores a prevailing sentiment that the existing multi-regulator model has demonstrated shortcomings in effectively deterring and penalising money laundering within the profession. This article will delve into the background of this regulatory change, analyse its implications for legal practitioners, and highlight the critical areas firms must address in anticipation of the FCA's enhanced oversight.

The impending transition represents more than just a change of regulator; it signals a shift towards a more stringent, data-driven, and consistently enforced AML regime. While the core obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) are not expected to change, the approach to supervision and enforcement will. Legal firms must understand the rationale behind this reform and prepare for a new era of compliance where the FCA's extensive experience and robust enforcement powers will be brought to bear on the legal sector.

The current AML regulatory framework for legal professionals in Great Britain is primarily governed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). These regulations impose stringent obligations on 'relevant persons,' including independent legal professionals involved in certain financial or real property transactions, to implement robust anti-money laundering and counter-terrorist financing (AML/CTF) controls. Historically, the statutory obligations under Schedule 1 of the MLR 2017 have rested with the Law Society, which delegates its regulatory and enforcement powers to the Solicitors Regulation Authority (SRA) for solicitors in England and Wales.

However, the effectiveness of this fragmented supervisory model, which involves 22 different professional body supervisors across the legal and accountancy sectors, has been a long-standing concern. Reports from the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) and HM Treasury have identified persistent weaknesses, inconsistencies, and a perceived lack of robust enforcement among some professional body supervisors. For instance, Baroness Hodge cited statistics indicating significant non-compliance rates among firms supervised by some bodies, coupled with a low number of disciplinary actions and fines that were disproportionately lower than those imposed by the FCA for similar breaches.

The Financial Conduct Authority (FCA), established in 2013, is the UK's primary financial regulator, responsible for overseeing conduct in financial markets, protecting consumers, and ensuring the integrity of the financial system. It currently supervises over 50,000 firms, including banks, investment firms, and crypto companies, for AML compliance, enforcing the MLR 2017 with significant powers including supervisory oversight, enforcement actions, and the issuance of detailed guidance. The government's decision to appoint the FCA as the Single Professional Services Supervisor (SPSS) for AML/CTF is a direct response to these concerns, aiming to simplify and strengthen the supervisory regime and present a more credible and consistent system to international bodies like the Financial Action Task Force (FATF).

The endorsement by Baroness Margaret Hodge, the Prime Minister's anti-corruption champion, for the transfer of AML supervision to the FCA highlights critical perceived failings within the current system. Baroness Hodge, appointed in late 2024, argued that the existing framework is not adequately supervising professionals, allowing some to pursue "highly profitable but immoral and, in some cases, unlawful practices." She pointed to an OPBAS report from March 2026, which identified continuing shortcomings in how some legal and accountancy regulators approached AML. Specific examples included the Chartered Institute of Taxation disciplining only four out of 31% non-compliant firms and the Council for Licensed Conveyancers imposing no fines despite 62% non-compliance. Crucially, she noted that a fine imposed on Mishcon de Reya by the SRA in 2022 for multiple AML breaches, amounting to £232,500, would have been £5.4 million if calculated under FCA rules, illustrating the disparity in enforcement.

The rationale for the switch, as articulated by the government, is to create a simpler, more consistent, and effective supervisory framework. The FCA's existing infrastructure, expertise in financial crime, and robust enforcement powers are seen as key advantages. The FCA's model is built on granular, evidence-based oversight, demanding that firms not only have policies, controls, and procedures (PCPs) in place but can also demonstrate their practical effectiveness. This contrasts with concerns that some current supervision has been less proactive or consistent. The reform is also intended to address the fragmentation across 22 different professional body supervisors, which has led to inconsistencies and confusion.

However, the proposed transition is not without its challenges and criticisms. The Law Society and the SRA have expressed concerns about the potential loss of sector-specific expertise. The SRA, which supervised over 6,000 law firms for AML as of October 2023, employs 280 solicitors and has a deep understanding of legal practice, ethical duties, and legal professional privilege. There are worries that the FCA, primarily a financial services regulator, may struggle to tailor its oversight to the unique realities of legal practice, potentially imposing significant administrative burdens and higher costs without necessarily improving AML outcomes. The issue of legal professional privilege and the FCA's access to such documents for regulatory purposes is a particular point of contention that HM Treasury is consulting on.

The legislative vehicle for this change is the Financial Services and Markets Bill, which includes clauses enabling the transfer of AML/CTF supervision. This forms part of a broader government agenda to tackle economic crime, building on measures introduced by the Economic Crime (Transparency and Enforcement) Act 2022 and the Economic Crime and Corporate Transparency Act 2023. While the MLR 2017 themselves are not changing, the interpretation and enforcement of these regulations by the FCA are expected to be more rigorous. HM Treasury conducted a consultation on the FCA's key duties, powers, and accountabilities in late 2025, with a transition plan expected in 2026. Full implementation, however, is unlikely before 2028, ahead of the UK's next FATF mutual evaluation in August 2027.

The impending transfer of AML supervision for the legal sector to the Financial Conduct Authority marks a pivotal moment for legal practitioners in Great Britain. While the transition aims to address long-standing concerns regarding the effectiveness and consistency of AML oversight, it will undoubtedly introduce a new paradigm of regulatory scrutiny. Firms can expect a more rigorous, data-driven, and potentially more punitive enforcement approach from the FCA, which possesses significantly greater fining powers than the SRA.

For practitioners, the implications are clear: a proactive and robust approach to AML compliance is no longer merely advisable but essential. Firms must use the interim period to thoroughly review and enhance their firm-wide and client-specific risk assessments, strengthen their policies, controls, and procedures, and ensure that all staff receive comprehensive and tailored AML training. Demonstrating the practical effectiveness of these controls, rather than simply having them in place, will be paramount. Legal firms should closely monitor the outcomes of ongoing consultations regarding the FCA's specific powers and operational approach to the legal sector, particularly concerning issues like legal professional privilege and the potential for dual regulation. Engaging with industry guidance and preparing for a heightened level of regulatory engagement will be crucial for navigating this significant shift successfully.