FCA AML Proposals: What Law Firms Need to Know in 2026

The UK government's proposals to hand the Financial Conduct Authority sweeping new powers over anti-money laundering supervision are set to reshape compliance for law firms across the country. If your firm has been operating under the supervision of the Solicitors Regulation Authority or another professional body, the FCA AML proposals for law firms represent the most significant shift in regulatory oversight the legal sector has seen in years. Understanding what is coming, and preparing early, could mean the difference between a smooth transition and a costly scramble.

In late 2025, HM Treasury published a consultation outlining plans to consolidate AML and counter-terrorism financing supervision under a single body: the FCA, acting as the new Single Professional Services Supervisor. The consultation closed in December 2025, and the legislative wheels are now turning. For law firms, this is not a distant concern: it is an active regulatory programme with a clear timeline and significant implications for how you manage compliance.

Why the Government Is Consolidating AML Supervision

The current AML supervisory landscape in the UK is fragmented. Twenty-two professional body supervisors, including the SRA, the Council for Licensed Conveyancers, and various accountancy bodies, each oversee their own regulated populations. HM Treasury and independent reviews have repeatedly found that this patchwork approach leads to inconsistent standards, gaps in enforcement, and difficulty coordinating intelligence across sectors.

The government's solution is to replace this fragmented model with a single, dedicated supervisor. The FCA was selected because of its existing experience supervising financial services firms for AML compliance, its established enforcement infrastructure, and its track record of taking robust action against non-compliance. In recent years, the FCA has imposed fines exceeding £124 million in financial crime-related cases, and an estimated 74 percent of its investigations relate to financial crime.

For law firms, this means moving from a regime where your regulator is a fellow legal professional body to one where your AML supervisor is a financial services regulator with significantly greater resources and a more interventionist approach.

What the FCA's New Role Will Look Like

Under the proposals, the FCA would become the Single Professional Services Supervisor for AML and CTF purposes. This does not mean the SRA or other legal regulators disappear. They will continue to handle conduct regulation, education standards, and other professional oversight. However, AML supervision would sit squarely with the FCA.

In practice, this means the FCA would be responsible for assessing law firms' AML risk assessments, policies, controls, and procedures. It would conduct supervisory visits, request information, and take enforcement action where firms fall short. The FCA's approach to supervision tends to be more data-driven and proactive than many professional body supervisors, often using thematic reviews and sector-wide assessments to identify systemic issues.

Law firms should expect a higher bar for demonstrating compliance. The FCA is accustomed to supervising large, complex organisations with dedicated compliance teams. Smaller law firms, which may currently rely on a single compliance officer or partner wearing multiple hats, will need to consider whether their current arrangements are robust enough to satisfy a regulator with significantly higher expectations.

The Timeline: Key Dates Law Firms Should Know

The legislative programme is already underway, and the timeline is tighter than many firms may realise.

The HM Treasury consultation ran from November to December 2025. The government is expected to introduce enabling legislation in a Bill during the summer of 2026, with draft secondary legislation following in the autumn of the same year. If the parliamentary process runs to schedule, Royal Assent could come by mid-2027, with a transition period leading to full implementation by 2029.

That gives law firms roughly three years from today to prepare for a fundamentally different supervisory relationship. While three years may sound comfortable, firms that have been through regulatory transitions know that updating policies, training staff, implementing new systems, and embedding cultural change takes significant time and resource.

Current Compliance Gaps in the Legal Sector

The case for change is underscored by compliance data from the legal sector itself. Recent assessments by the SRA have found that only 38 percent of law firms are fully compliant with existing AML requirements. A further 46 percent are partially compliant, meaning they have some controls in place but with notable gaps. Most concerning, 16 percent of firms were found to be non-compliant.

These figures suggest that a significant majority of law firms will need to raise their standards before the FCA takes over supervision. The FCA is unlikely to accept the kind of partial compliance that has persisted under the current regime. Firms that are currently in the partially or non-compliant categories should treat the transition period as an urgent opportunity to close gaps.

Common areas of weakness include inadequate firm-wide risk assessments, insufficient client due diligence procedures, poor record-keeping, lack of staff training, and failure to file suspicious activity reports in a timely manner. Each of these areas will be subject to scrutiny under the FCA's supervisory framework.

How FCA Supervision Will Differ From What You Know

Law firms accustomed to the SRA's supervisory approach should prepare for several key differences under FCA oversight.

First, the FCA takes a more risk-based approach to supervision. Firms assessed as higher risk e.g. those handling large volumes of property transactions, trust work, or client money, for example, can expect more frequent and intensive supervisory engagement. Lower-risk firms will still face periodic reviews, but the depth and frequency will be calibrated to the risk profile.

Second, the FCA has a broader range of enforcement tools at its disposal. These include financial penalties, public censure, restrictions on business activities, and in serious cases, criminal prosecution referrals. The FCA's willingness to use these tools is well documented in the financial services sector, and there is no reason to expect a lighter touch for legal services.

Third, the FCA places significant emphasis on data and reporting. Firms may be required to submit regular returns covering their AML activities, suspicious activity reporting volumes, and other metrics. This represents a step change from the less data-intensive oversight many firms currently experience.

Five Steps Law Firms Should Take Now to Prepare

Rather than waiting for the legislation to be finalised, forward-thinking firms should begin preparing now. Here are five practical steps to get ahead of the transition.

Conduct a Gap Analysis Against FCA Standards

Review your current AML framework against the FCA's existing guidance for supervised firms. The FCA's Financial Crime Guide and its approach to AML systems and controls provide a benchmark for what the regulator expects. Identify where your policies, procedures, and controls fall short and develop a remediation plan.

Invest in Training and Awareness

Ensure that all staff, not just the compliance team, understand the implications of the regulatory change. AML compliance is a firm-wide responsibility, and the FCA will expect to see evidence that training is comprehensive, role-specific, and regularly refreshed. Consider bringing in external training providers with experience of FCA-regulated environments.

Strengthen Your Risk Assessment

Your firm-wide risk assessment is the foundation of your AML compliance programme. Review it to ensure it reflects the full range of money laundering risks your firm faces, including emerging threats such as proliferation financing and sanctions evasion. The FCA will expect risk assessments to be dynamic documents that are reviewed and updated regularly, not static exercises completed once and filed away. This includes consideration how the firm-wide risk assessment translates to client and matter risk assessments, and whether the actual risks exposed at the granular level are reflected in the firm-wide approaches.

Upgrade Your Technology and Record-Keeping

The FCA's data-driven approach to supervision means firms will need robust systems for capturing, storing, and reporting AML-related data. If you are still relying on manual processes or spreadsheets for client due diligence and monitoring, now is the time to invest in dedicated compliance and client lifecycle management technology. Good record-keeping is also essential as the FCA will expect you to demonstrate compliance through clear, auditable records. Best-in-class technology providers will be able to support you through this record-keeping requirement with granular information, e.g. individual changes to client risk assessments, escalation processes that took place with PEPs, the monitoring of business sanctions updates and more.

Engage With the Consultation Process

Stay informed about the legislative developments and participate in any further consultations. Industry bodies such as the Law Society and the SRA are likely to publish guidance and resources as the transition progresses. Engaging early ensures your firm's voice is heard and that you are aware of any changes that could affect your specific practice areas.

Conclusion

The FCA's proposed takeover of AML supervision for law firms will require preparation and a considered approach by law firm leaders. The legislative timeline is clear, the compliance gaps in the legal sector are well documented, and the FCA's track record suggests it will bring a markedly more rigorous approach to supervision.

Law firms that start preparing now will be in the strongest position when the transition takes effect. Those that delay risk facing enforcement action, reputational damage, and the operational disruption of a last-minute compliance overhaul.

If your firm needs support navigating the transition to FCA AML supervision, now is the time to assess your readiness and build a compliance and technology programme that meets the higher standards ahead. Get in touch with our Legl’s team to discuss how we can help you prepare.