London, 2026-01-01 17:30:00 —
UK law firms are bracing for increased scrutiny as the Financial Conduct Authority (FCA) takes over as the anti-money laundering watchdog, a move intended to improve the City’s reputation ahead of a major review.
- The FCA has been designated as the new anti-money laundering supervisor for the legal sector.
- The move is part of a broader government effort to address the UK’s reputation as a hub for “dirty money.”
- Experts anticipate “sharper” penalties under the FCA’s oversight compared to the current system.
UK law firms are preparing for a crackdown on money laundering as the government seeks to bolster the City’s reputation before a Financial Action Task Force (FATF) review in August 2027. The Financial Conduct Authority (FCA) will become the new anti-money laundering watchdog for the legal sector, a change experts warn could lead to stricter penalties and a reshaping of the industry.
FCA to Consolidate Regulation
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The decision to consolidate regulation, currently spread across nine separate supervisors, is a key part of the government’s strategy to combat the UK’s image as a destination for illicit funds. The National Crime Agency estimates that approximately £100 billion is laundered through or within the UK annually, often facilitated by entities like law firms.
Concerns about the City’s vulnerability to money laundering surfaced in 2018 following an assessment by the FATF, which identified significant weaknesses in the UK’s anti-money laundering supervision and called for strengthened oversight, particularly within the accounting and legal sectors. Since 2017, the UK’s national risk assessments have consistently classified the legal sector as “high risk” for money laundering and terrorist financing.
Shift Driven by Impending FATF Review
“The timing of this shift is no coincidence,” said Priya Giuliani, a financial crime investigator and partner at the consultancy HKA. Giuliani noted the “urgency” for the UK to demonstrate a “credible, consistent, and effective supervisory system” to the FATF by August 2027.
The FCA’s expanded role, encompassing accounting firms and trusts, follows a two-year government review that revealed inconsistent oversight, duplication among over 20 regulators, and insufficient information sharing with law enforcement. The FCA will assume responsibilities from nine existing supervisors, most notably the Solicitors Regulation Authority (SRA).
Stricter Penalties Expected
Giuliani explained that while the SRA has historically adopted a “collaborative, guidance-led approach,” the FCA is expected to employ “sharper swords” when addressing wrongdoing. The SRA’s enforcement powers are limited, with a maximum fine of £25,000, although larger fines can be imposed through tribunal referral. In the year leading up to April, the SRA issued 86 fines totaling £1.5 million, ranging from £1,520 to £300,000.
In contrast, the FCA issued six anti-money laundering fines last year, totaling £82 million, with penalties ranging from £289,000 to £39.3 million. This disparity highlights the potential for significantly increased financial consequences under the FCA’s supervision.
Increased Scrutiny of Firm Applications
HKA data suggests that the FCA’s takeover could also create hurdles for firms seeking to operate in the UK. The FCA rejected 44% of the 275 applications it received in the 2023-24 financial year, while the SRA approved all 218 applications.
“The FCA brings sharper scrutiny, broader powers, and a data-driven lens,” Giuliani said. “Legal firms must be ready.”
Steve Smart, the FCA’s executive director of enforcement and market oversight, stated that “fighting financial crime is a priority” for the FCA and that the agency will leverage its experience in anti-money laundering supervision. He added that the FCA intends to adopt a “data-led and proportionate approach” focused on collaboration with firms to identify and disrupt criminal activity.
Time.news based this report in part on reporting by The Guardian and added independent analysis and context.
