SRA Publishes Landmark AML Report Amid Transition to FCA Oversight

The Solicitors Regulation Authority (SRA) has released its latest Anti-Money Laundering Annual Report at a pivotal moment for the United Kingdom’s financial crime framework. As the government moves to consolidate all professional body supervisors under the Financial Conduct Authority, the SRA has produced one of its most comprehensive accounts to date of the legal sector’s exposure to financial crime and its own regulatory responses.

The 2024–25 report details the scale of the SRA’s activity in combating illicit finance within the legal profession, documenting 935 proactive AML engagements with firms—a record level of scrutiny and a sharp increase from prior years. Over the period, the regulator reviewed 5,873 files, assessed more than 800 firm-wide risk assessments, and issued sanctions ranging from regulatory settlement agreements to fines exceeding £290,000. The intensity of oversight demonstrates that the SRA has treated AML supervision as a core mandate rather than a compliance add-on. Yet the report coincides with the government’s decision to designate the FCA as the single supervisor for anti-money laundering and counter-terrorism financing across all professional sectors, adding a layer of uncertainty to the SRA’s findings. While the report highlights measurable progress and growing sophistication in data-led supervision, the SRA’s future role in AML enforcement is now in question.

The report’s central message is that the legal profession remains at high risk of criminal exploitation. Approximately one-third of firms reviewed were not fully compliant with money-laundering regulations, with deficiencies most commonly relating to inadequate firm-wide risk assessments, weak client due diligence, and poor documentation of source of funds. Despite these gaps, the SRA’s strategy of targeted inspections, thematic reviews, and enforcement escalation has begun to address deficiencies. The SRA’s chief executive described the year as one of “significant progress,” emphasizing the regulator’s commitment to protecting the sector from misuse, a statement that carries particular poignancy as the SRA prepares to hand over supervisory responsibilities to the FCA.

The report provides a detailed view of how money-laundering risks manifest in the legal sector. Law firms, acting as trusted intermediaries in property transactions, corporate structuring, and client account management, remain attractive channels for concealing illicit funds. The SRA supervises over 5,500 firms for compliance with the Money Laundering Regulations 2017, as amended, adopting a risk-based approach that adjusts oversight according to firm exposure. Inspections focus on firms involved in conveyancing, trust formation, and complex cross-border transactions.

Findings reveal persistent vulnerabilities. Some firms failed to perform source-of-funds checks or maintain proper client-matter risk assessments, while others lacked independent audit reviews or adequate staff training. Despite years of guidance, a small but concerning proportion of firms still operated without a documented firm-wide risk assessment. Nonetheless, the report highlights progress: 47% of firm-wide risk assessments were compliant, up from 43% the previous year, and non-compliance dropped below 10%. Improvements were noted in staff training, documentation standards, and awareness of sanctions obligations. A growing number of firms now use electronic identification and verification tools for client onboarding, with automated screening for politically exposed persons and sanctions matches.

The SRA credits its data-driven methodology with much of this progress. Supervisors review digital submissions from thousands of firms, cross-referencing them with internal risk models, allowing inspections to be directed where risks are most acute. This analytical capability has positioned the SRA as one of the more advanced professional body supervisors under the OPBAS framework. However, the impending centralization under the FCA could render much of this bespoke infrastructure, staff expertise, and established communication channels with law firms redundant or repurposed.

The government’s plan to consolidate AML supervision under the FCA is part of the broader Economic Crime Plan and the Economic Crime and Corporate Transparency Act, with the goal of efficiency: one supervisor with a national mandate, consistent enforcement, and unified data collection. For policymakers, the consolidation promises a streamlined, less fragmented regime that addresses gaps exploited by launderers navigating between sectoral standards. Yet for professional bodies like the SRA, the transition is seen as a displacement rather than optimization. The 2024–25 report highlights years of cumulative improvement in governance, risk profiling, and inter-regulator collaboration, noting that enforcement outcomes doubled within twelve months, reaching 151 AML-related sanctions, including 14 prosecutions before the Solicitors Disciplinary Tribunal.

These metrics illustrate a regulator that has matured into a capable AML supervisor, with sophisticated processes for handling failures in client due diligence and source-of-wealth verification. Its staff are trained to interpret the nuances of legal practice—expertise that a financial regulator may struggle to replicate. Critics of centralization caution that the FCA’s broader focus on financial markets could overshadow specific AML challenges in the legal sector, where issues of client confidentiality, privilege, and ethical constraints differ markedly from banking or insurance. Uniform enforcement templates could inadvertently penalize compliant firms while missing subtle risk indicators.

Operational challenges also abound. The FCA will inherit thousands of active supervision cases, pending investigations, and ongoing compliance plans. Transitioning this portfolio without interruption requires coordination and funding. While the government has pledged a “smooth transition,” firms remain concerned about regulatory uncertainty, particularly regarding ongoing AML investigations. The SRA’s report acknowledges this tension, expressing commitment to cooperate with the FCA while also noting disappointment at losing its AML mandate. This reflects a deeper unease within the profession about whether consolidation will strengthen the UK’s AML defenses or undermine progress achieved under specialized supervision.

Centralizing AML oversight is not inherently flawed. The UK has long faced criticism for a fragmented supervisory landscape, with overlapping jurisdictions creating inconsistent standards and diluted accountability. Consolidation under the FCA could eliminate duplication, align data strategies, and enable more coherent enforcement. Yet the SRA’s findings reveal the sector’s complex risk management landscape. The report notes that 78% of firms conducted proliferation financing risk assessments, a new requirement under Regulation 18A, while 90% use technology for electronic identity verification—but only a third regularly test the accuracy of these tools. The uneven maturity of AML systems across the sector presents a challenge that centralization alone will not resolve.

Thematic reviews further show the practical realities of compliance. Many firms rely on template-based client-risk assessments that fail to justify risk ratings or align with firm-wide assessments. Some maintain outdated policies that overlook emerging typologies such as virtual asset transactions or foreign trust arrangements. Others lack adequate controls to verify beneficial owners of corporate clients. Even as standards rise, large portions of the sector remain vulnerable, and the FCA will inherit a complex ecosystem requiring sector-specific understanding and continuous education.

The report also highlights governance concerns. The SRA’s disciplinary model has been transparent and proportionate, balancing corrective engagement with punitive measures. Under FCA oversight, firms may face stricter financial penalties and less flexibility in remediation. The SRA’s history of engaging firms through compliance plans and letters of engagement may give way to a heavier, more adversarial approach. Supporters argue the FCA’s stronger statutory powers and intelligence resources will enhance deterrence, allowing identification of cross-sector patterns that professional bodies could not detect. Yet integrating professional oversight into a financial regulator will require careful calibration to preserve proportionality and trust.

The 2024–25 SRA report stands as both an achievement and a farewell to an era of professional self-regulation. It demonstrates that AML supervision in the legal sector can be data-driven, evidence-based, and responsive, while also exposing the limits of voluntary alignment across multiple supervisory bodies—a weakness the government now seeks to remedy through consolidation. The success of the new FCA-led model will depend on whether existing expertise is preserved and whether a tailored, risk-based approach is maintained. Centralization alone does not guarantee effectiveness; oversight must remain close enough to legal practice realities to detect misuse early and intervene proportionately.

As the transition unfolds, law firms face an evolving regulatory landscape that will test their adaptability. They must not interpret the shift as a relaxation of standards; if anything, the FCA’s approach will likely intensify expectations for documentation, data integrity, and audit trails. The SRA’s record demonstrates that progress is possible through persistent supervision and sector-specific dialogue. The challenge is ensuring that such progress survives under a centralized regime. The UK’s experience will serve as a case study for other jurisdictions contemplating similar reforms, illustrating the tension between efficiency and specialization in AML supervision. The SRA’s work over the past year proves that targeted, professional oversight can yield tangible improvements. The FCA’s task will be to build on that foundation rather than replace it. If successful, centralization could deliver a cohesive AML architecture capable of matching the sophistication of modern financial crime; if mishandled, it risks reversing years of incremental gains and eroding confidence in the very professions that serve as the first line of defense against illicit finance.

By fLEXI tEAM