UK Solicitors Raise Alarm Over Proposed AML Regulation Changes

The legal profession in the United Kingdom is voicing strong concerns over proposed changes to anti-money laundering (AML) regulations that could impose substantial and potentially unworkable compliance obligations on solicitors. Recent amendments and consultations by HM Treasury on the Money Laundering Regulations (MLRs) have sparked worry among solicitors’ representatives and industry observers, who fear the reforms may inadvertently complicate AML duties rather than simplify them.

Anti-money laundering regulations are a cornerstone of the UK’s efforts to combat financial crime and terrorist financing. Since the implementation of the Money Laundering Regulations 2017, solicitors and law firms have been required to adhere to strict AML compliance obligations, including client due diligence (CDD), ongoing monitoring, and reporting suspicious activity. These rules aim to prevent the legal sector from being exploited for illicit financial flows. While the regulations are critical, many in the legal community have highlighted the disproportionate burden they place on solicitors and smaller practices, noting that the complexity and prescriptive nature of compliance can divert resources from core client service and legal work.

HM Treasury has recently been reviewing the Money Laundering Regulations through consultations and technical amendments, with particular scrutiny on proposals affecting pooled client accounts (PCAs), which solicitors use to hold funds on behalf of multiple clients. The Treasury’s draft regulations, reflecting reforms announced in July 2025, seek to improve the regime and increase PCA availability. However, the amendments decouple PCAs from the simplified due diligence (SDD) framework, requiring banks to take “reasonable measures” to understand PCA purposes, assess risks, and impose controls accordingly.

Solicitors’ representatives have warned that these provisions could create “significant and uncertain compliance burdens” that may not only be impractical but could also limit access to legal services if banks restrict PCA provision. The Law Society of England and Wales stated that the amendments “do not enhance the effectiveness of efforts to combat money laundering” and conflict with government promises to reduce unnecessary regulatory burdens. John Binns, a fraud partner at BCL Solicitors, said it is “difficult to understand how HM Treasury believes these changes would encourage or increase the provision of PCAs, or convincingly reduce regulation,” given that previous rules already allowed the application of SDD to PCAs.

The Law Society has recommended retaining the option to apply SDD to PCAs where risk assessments support it and reaffirming the government’s commitment to a “risk-based and proportionate” AML framework. It has also called for legislative clarifications to permit disclosures “by law” for professional conduct without breaching client confidentiality, alongside guidance to encourage transparency with clients.

Wider AML reform proposals from HM Treasury’s 2024 consultation aim to recalibrate the UK’s framework toward a more proportionate and risk-based approach. Key proposals include narrowing enhanced due diligence triggers, limiting high-risk third countries on the FATF list to Iran, Myanmar, and North Korea, and issuing clearer guidance on when source of funds checks are “necessary.” These measures are intended to reduce regulatory burdens while improving AML effectiveness, with a draft statutory instrument for Parliament expected by the end of 2025. The Solicitors Regulation Authority (SRA) and other AML supervisors are coordinating to update sector guidance in line with these reforms.

Despite progress, some stakeholders argue the measures do not go far enough. Specific burdens, particularly around PCAs and reliance mechanisms under Regulation 39, continue to pose potential criminal liability, discouraging wider use and increasing compliance workloads. The Law Society’s President, Richard Atkinson, acknowledged the government’s recognition of “disproportionate burdens current AML regulations place on law firms, particularly smaller practices,” but urged the adoption of a proportionate system with clarity tailored to the legal sector’s needs. The Law Society described the Treasury’s refusal to amend criminal liability concerns regarding reliance mechanisms as a “missed opportunity” to encourage more efficient compliance.

Concerns have also been raised about banking sector provisions in the AML reforms and potential unintended consequences. Solicitors argue that without proper risk-based application of due diligence, banks may restrict PCA services, limiting solicitors’ ability to hold client funds safely and transparently. Rising scrutiny from the SRA underscores these challenges; in 2025, firms such as Simpson Thacher & Bartlett LLP and Taylor Vinters faced fines of £300,000 and £172,934, respectively, for AML failures including inadequate firm-wide risk assessments and failure to identify Politically Exposed Persons (PEPs). These actions highlight the critical importance of effective AML controls while illustrating the operational challenges faced by law firms in meeting complex regulatory obligations.

In July 2025, the UK government acknowledged that AML regulations impose a “major burden” on professional business service firms and outlined reforms aimed at improving effectiveness while ensuring proportionality. The Professional and Business Services Sector Plan confirmed plans to promote digital identity solutions to facilitate AML checks, signaling a commitment to clearer, more coherent rules that protect the UK’s financial system without obstructing legitimate business activities, including legal services.

The ongoing dialogue between solicitors, the Treasury, and regulators underscores the balance required between robust anti-money laundering measures and the operational needs of legal professionals. While HM Treasury’s reform proposals represent progress toward risk-based and proportionate regulations, the legal sector continues to press for reconsideration of measures that could impose additional burdens, particularly regarding pooled client accounts and reliance on third-party due diligence. As the government moves to finalize the draft statutory instrument and update guidance by late 2025, law firms are urged to remain vigilant and prepared to adapt to evolving AML obligations, ensuring that transparency, proportionality, and clarity remain central to protecting the financial system without impeding essential legal services.

By fLEXI tEAM