Nearly a third of firms inspected by the regulator were non-compliant with AML rules
Almost one in three law firms inspected by the Solicitors Regulation Authority (SRA) over the past year failed to comply with anti-money laundering (AML) regulations, according to the regulator’s latest annual report.
The SRA’s findings, covering the year to 5 April 2025, reveal that fines for AML breaches totalled nearly £1.5 million, almost double the amount imposed the previous year. The figures also show a steep increase in the number of investigations and enforcement actions, reflecting what the regulator described as a significant escalation in AML supervision activity.
The regulator’s tougher stance comes shortly after the government announced plans to transfer oversight of all legal sector AML supervision to the Financial Conduct Authority (FCA) — a decision the SRA described as “disappointing”.
As of April 2025, 5,569 of the 9,149 SRA-authorised firms were within the scope of the UK’s AML regulations. Of these, a record 864 firms underwent assessments of their AML controls through inspections, desk-based reviews, or independent audits. That figure represents a sharp rise from 545 assessments in 2023/24 and 273 the year before.
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The SRA also engaged with 71 firms through thematic reviews during the year. Out of 833 firms given a compliance rating, only 112 (13%) were deemed fully compliant — down from 22% last year. A further 451 firms (54%) were found partially compliant, while 270 firms (32%) were non-compliant, up from 23% the previous year.
Partial compliance included firms performing adequately overall but failing to meet certain key obligations, as well as those with serious deficiencies in one or more areas. Firms in this category received either a “letter of engagement” advising on improvements or a compliance plan setting deadlines for corrective action. Non-compliant firms were referred for investigation.
During the period, the SRA issued 64 letters of advice or warning and imposed 73 fines totalling £953,333. A further 14 cases were referred to the Solicitors Disciplinary Tribunal (SDT), resulting in 13 fines worth £545,650. All penalties were paid into HM Treasury. In total, 151 enforcement actions were recorded — almost double the 78 in the previous year and more than triple the 47 recorded in 2022/23.
The most common AML failure identified was the absence of client and matter risk assessments (CMRAs). Half of the firms found non-compliant lacked proper CMRAs on file, despite having policies in place. The SRA said this revealed “a disconnect between the policies, controls and procedures and what is happening at matter level.”
Out of 5,873 client files reviewed, 16% had missing or incomplete risk assessments, while 39% were deemed ineffective — focusing on operational rather than AML risks. Only 47% of firms had a compliant firm-wide risk assessment, though this represented a slight improvement from 43% last year.
The SRA also noted a rise in failures to perform source of funds checks — missing in 10% of files — and failures to conduct or record identity verification for clients, found in 6% of cases. Other recurring issues included weak customer due diligence, poor supervision, and failure to recognise when work fell under AML regulations.
Inadequate leadership engagement was identified as a key contributing factor, with the report warning that some firm leaders “are not treating AML seriously enough”. The SRA said ineffective supervision, training, and systems allowed non-compliant transactions to proceed without proper checks.
The regulator itself submitted 19 suspicious activity reports (SARs) to the National Crime Agency, involving over £148 million in suspected criminal proceeds. Nearly 73% of these cases related to conveyancing transactions.
Among large law firms, the SRA reviewed 25 independent AML audits and found that while most were satisfactory, six firms were referred for desk-based review due to identified weaknesses. None were escalated for formal investigation.
In relation to sanctions compliance — which applies to all regulated firms — 86% had formally assessed their exposure to sanctions risk, while 14% had clients with links to sanctioned countries. The SRA conducted 47 sanctions inspections, of which 38 were compliant and only two non-compliant.
The report concluded that while most firms were taking AML compliance seriously, the overall level of non-compliance remained “unacceptably high,” with the regulator pledging continued scrutiny in the coming year.