UK Government Transfers AML Supervision to Financial Conduct Authority

The UK Government has confirmed its intention to transfer Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) supervision for the legal sector from the Solicitors Regulation Authority (SRA) and other professional body supervisors to the Financial Conduct Authority (FCA). This significant reform, announced in October 2025 and detailed in HM Treasury's June 2026 consultation response, aims to consolidate and strengthen the supervisory regime across professional services. While the Money Laundering Regulations 2017 remain the core legislative framework, the shift introduces a new supervisory model, including FCA-led registration, enhanced 'fit and proper' assessments for key personnel, and a more stringent, evidence-based enforcement approach. Implementation is anticipated to take several years, likely not before late 2028, requiring legal firms to prepare for a dual regulatory landscape where the SRA retains conduct oversight while the FCA assumes AML/CTF responsibilities.

The landscape of Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) supervision for the legal sector in Great Britain is set for a significant overhaul. Following extensive consultation, HM Treasury confirmed in June 2026 its decision to transfer primary AML/CTF supervisory responsibility from the Solicitors Regulation Authority (SRA) and other professional body supervisors to the Financial Conduct Authority (FCA). This move, initially announced in October 2025, represents a fundamental shift in how legal professionals will be regulated in their efforts to combat financial crime.

This reform is driven by a broader government agenda to strengthen the UK's defences against economic crime, streamline a previously fragmented supervisory system, and ensure greater consistency and effectiveness in AML/CTF oversight across various professional services. While the core obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) remain, the change in supervisor signals a more robust, outcomes-focused regulatory approach. Legal practitioners must understand the implications of this transition, which promises a new era of compliance scrutiny and enforcement.

This article will delve into the background of the current AML/CTF supervisory framework, analyse the key changes introduced by the government's response to the consultation, and discuss the practical implications for legal firms as they navigate this evolving regulatory environment. It will highlight the anticipated challenges and opportunities, offering insights into how firms can best prepare for the FCA's expanded role.

The UK's AML/CTF regime is primarily governed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which transpose the EU's Fourth Money Laundering Directive into domestic law. These regulations impose stringent obligations on a wide array of regulated entities, including legal professionals, to conduct customer due diligence (CDD), enhanced due diligence (EDD), maintain robust internal controls, provide staff training, and report suspicious activities to the National Crime Agency (NCA).

Historically, AML/CTF supervision for the legal sector in England and Wales has fallen under the purview of the SRA, alongside other professional bodies for different legal specialisms. The SRA's role involves supervising compliance, conducting inspections, enforcing risk-based approaches, and imposing penalties for breaches. However, this multi-supervisor model, encompassing 22 professional body supervisors across various sectors, has been criticised for its fragmentation, leading to perceived inconsistencies in application and enforcement.

The impetus for reform has been building, culminating in the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which aims to strengthen measures against financial crime, fraud, and illicit business activities. Against this backdrop, HM Treasury initiated a consultation in June 2023 on potential models for reforming the AML/CTF supervisory regime, ultimately leading to the decision to consolidate supervision under the FCA for professional services.

The government's decision, formalised in HM Treasury's June 2026 response to the consultation on AML/CTF Supervision Reform: Duties, Powers and Accountability, confirms the FCA's expanded role as the single AML/CTF supervisor for legal, accountancy, and trust and company service providers. While the SRA will retain its general conduct oversight and responsibility for other economic crime matters like fraud and sanctions compliance, the FCA will take charge of AML/CTF supervision for all in-scope legal work. This creates a dual regulatory environment where firms may face parallel scrutiny from both the SRA and the FCA, necessitating a clear understanding of jurisdictional boundaries.

A key change will be the requirement for all professional services firms undertaking AML-regulated activities to register with the FCA. The FCA will also extend its 'fit and proper' requirements under Regulation 58 to Beneficial Owners, Officers, and Managers (BOOMs) within legal firms. This goes beyond the SRA's current Regulation 26 criminal records checks, encompassing assessments of integrity, competence, and compliance history. While the government expects the FCA to avoid unnecessary duplication during transition, the enhanced scrutiny on individuals' suitability represents a material shift in accountability.

Concerns have been raised by the legal sector regarding the potential loss of sector-specific expertise, increased administrative burdens, and higher costs associated with FCA supervision. The Law Society, for instance, has highlighted the importance of supervision being tailored to the realities of legal practice, reflecting solicitors' ethical duties and legal professional privilege. HM Treasury has indicated that guidance for the legal sector will continue to be drafted by practitioner groups, such as the Legal Sector Affinity Group (LSAG), but will require FCA approval, with the Treasury retaining a veto. This mechanism aims to balance sector expertise with consistent regulatory standards.

The FCA's enforcement approach is typically data-driven, risk-based, and outcomes-focused, differing from the SRA's. Firms should anticipate a greater emphasis on demonstrating the practical effectiveness of their AML controls, rather than merely documenting them. The FCA will utilise its existing enforcement powers, including civil sanctions and, for serious cases, criminal proceedings. While HM Treasury intends to explore streamlined processes for minor breaches and ensure coordinated enforcement to prevent 'double jeopardy,' the potential for more rigorous and financially significant penalties under the FCA's regime is a tangible concern for firms.

The confirmed transfer of AML/CTF supervision to the FCA marks a pivotal moment for the UK legal sector. While the full implementation is several years away, likely not before late 2028, the direction of travel is clear: a more centralised, robust, and financially-focused approach to combating money laundering and terrorist financing. Legal firms must recognise that this is not merely a change of regulator but a fundamental shift in the supervisory philosophy, demanding proactive engagement and adaptation.

Practitioners should begin preparing now by reviewing and strengthening their existing AML/CTF policies, controls, and procedures, with a particular focus on demonstrating their practical effectiveness and aligning with the FCA's data-driven expectations. Enhanced due diligence, comprehensive risk assessments, and rigorous 'fit and proper' checks for BOOMs will be critical. Staying abreast of further guidance from HM Treasury and the FCA, particularly concerning transition plans, fee structures, and the interplay between FCA and SRA oversight, will be essential for navigating this complex, evolving regulatory landscape successfully. The legal profession must embrace this reform as an opportunity to reinforce its role as a gatekeeper against financial crime, ensuring compliance is not just a tick-box exercise but an integral part of firm culture and operations.