Law firms across the United Kingdom are preparing for a significant regulatory shake-up as the government moves to tackle the country's reputation as a haven for illicit finance. The Financial Conduct Authority (FCA) is set to become the new anti-money laundering watchdog for the legal sector, replacing a fragmented system of nine separate supervisors.
A Unified Front Against Dirty Money
This consolidation of regulatory power is a direct response to longstanding criticism of the UK's defences against financial crime. The National Crime Agency estimates that a staggering £100bn is laundered through or within the UK every year, with professional services like law firms sometimes acting as enablers. The legal sector has been consistently classed as a 'high risk' for money laundering in every national risk assessment since 2017.
The push for reform has gained urgency ahead of a fresh evaluation by the Financial Action Task Force (FATF), the global crime watchdog, scheduled for August 2027. A 2018 FATF report had previously highlighted major weaknesses in the UK's supervisory regime. "The timing of this shift is no coincidence," noted Priya Giuliani, a financial crime investigator and partner at consultancy HKA, emphasising the need for a credible system to be in place before the review.
Sharper Swords and Stiffer Penalties
The transition from the current main regulator, the Solicitors Regulation Authority (SRA), to the FCA signals a move towards a tougher enforcement culture. Experts predict the change will bring "sharper swords" for punishing wrongdoing. The contrast in current powers is stark: the SRA has a £25,000 cap on most fines, while the FCA's penalties are on a different scale.
In the year to April, the SRA issued 86 anti-money laundering fines totalling £1.5m. By comparison, the FCA issued just six fines last year, but they ranged from £289,000 to a colossal £39.3m, summing to £82m. This indicates the significantly higher financial stakes law firms will soon face.
Higher Barriers to Entry and Data-Driven Scrutiny
The FCA's approach is also expected to raise the bar for new firms entering the market. Data gathered by HKA reveals that in the 2023-24 financial year, the FCA rejected 44% of 275 applications it received for authorisation. During the same period, the SRA accepted all 218 firms that applied.
"The FCA brings sharper scrutiny, broader powers, and a data-driven lens," Giuliani warned. "Legal firms must be ready." Steve Smart, the FCA's Executive Director of Enforcement and Market Oversight, stated the regulator would take a "data-led and proportionate approach," focusing on partnering with firms to identify and disrupt crime.
The government's decision follows a two-year review that found inconsistent oversight, duplication between more than 20 regulators, and gaps in information sharing with law enforcement. By centralising authority under the FCA, ministers aim to present a stronger, more unified front against financial crime and begin the process of cleaning up the City's global reputation.
