Small firms (1-25 employees) face the same regulatory pressures as their larger counterparts - but with far fewer resources to meet them.

Legl’s State of Compliance 2025 report paints a mixed picture: smaller practices excel in collaboration and client experience, yet struggle to plan and invest with confidence. The result is a sector that’s diligent and adaptable, but often operating without the headroom to feel fully in control.

In this article, we’ll explore how small firms are coping with today’s compliance demands.

To see the complete findings, download the State of Compliance 2025 report today.

Where small firms excel

Despite limited resources, the State of Compliance 2025 reports small firms outperform their medium and large counterparts on three fronts that matter.

Collaboration with fee-earners

Genuine partnership between compliance and fee-earners exists in 50% of small firms - almost three times the rate of large firms (17%). Proximity helps: when teams sit close together, it’s easier to communicate and collaborate.

Time pressure is also less acute than in mid-market teams - 58% of small-firm respondents cite fee-earner time as a challenge, compared with 95% in medium firms. This closeness gives smaller firms something larger ones often struggle to maintain: a shared sense of purpose between compliance and fee-earners.

Client onboarding

If there’s one area where small firms stand out, it’s client onboarding. One in four rate their process as excellent, compared with just 5% of medium firms and 4% of large firms.

Simpler structures, shorter chains of approval, and fewer handoffs all help create smoother journeys for clients. Most firms admit that compliance steps can affect satisfaction, but smaller teams seem better able to balance rigour with responsiveness.

The challenge now is to keep that experience advantage while standardising the riskiest steps.

Data visibility

One of the quiet advantages of being small is simply being able to see what’s going on. According to our survey, just 17% of small firms report data visibility issues, compared with 33% of large firms.

When everyone’s close to the work, it’s easier to trace a process end-to-end, spot inconsistencies, and act quickly. As firms grow, they add layers - and those clear sightlines often blur. Data gets siloed, making it harder to spot problems and take action.

Where small firms struggle 

Small firms show strong awareness of their compliance challenges, yet three consistent gaps remain: confidence in meeting evolving expectations, the knowledge to stay compliant amidst constant change, and clarity on where to invest moving forward. 

Confidence lagging behind

The compliance bar keeps rising. New guidance from LSAG, the rollout of the Economic Crime and Corporate Transparency Act (ECCTA), and heightened sanctions activity are reshaping the landscape. For small firms, that means meeting the same standards as larger peers - but with fewer people and tighter margins.

Many small firms are making targeted improvements, but confidence hasn’t caught up with activity. Just 42% feel on top of evolving AML expectations, compared with 63% of medium and 67% of large firms. In many cases, this lack of confidence translates into a lack of action - 25% of small firms reported no process changes last year, versus 0% of medium firms and 12.5% of large firms.

Keeping pace with regulation is a challenge for every firm. For smaller practices with fewer resources, it’s even more so.

A lack of knowledge

When asked “What kind of support would most increase your team’s impact over the next 12 months?”, small firms were less focused on gaining new tools or more strategic time than their larger peers. 

In fact, the most common response - chosen by two-thirds of firms - was dedicated training or CPD. This suggests that knowledge and confidence, rather than capacity alone, remain small firms’ biggest levers for progress.

It’s a reminder that capability often matters more than scale. For many smaller practices, progress starts with understanding, not infrastructure.

Investment uncertainty 

When asked about future investment, half of small firms said they were unsure of their plans for the next six to twelve months - double the proportion of large firms.

Our survey revealed that small firms are clear about what matters most: 75% name client risk assessments and 58% point to source of funds and wealth checks as top AML priorities. Yet when it comes to investment, only one in three plan to automate those checks, and half remain unsure of their next steps.

The intent is there, but the follow-through is harder. Limited capacity means many small firms likely focus on incremental fixes rather than long-term transformation. It’s a pragmatic approach in the short term, but it risks entrenching the very challenges they’re trying to solve.

Final thoughts

Smaller firms occupy a unique position. They can move quickly, build culture more easily, and maintain closer relationships between compliance, fee-earners and clients. Those qualities matter more than ever as the regulatory landscape tightens.

The data shows clear gaps in confidence, investment, and pace of change. However, it also reveals clear advantages: greater collaboration, agility, and cohesion. The challenge ahead is to protect those strengths while building firmer systems around them. 

With proportionate planning and clear priorities, small firms can do what they’ve always done best - stay close to their clients, and stay in control. In a year defined by tightening expectations, calm confidence may prove the small firm’s greatest advantage.

To learn more about the state of compliance for law firms in 2025, download our full report.