SRA review finds widespread uncertainty and missed checks in money laundering compliance
A review by the Solicitors Regulation Authority has found that many law firms remain uncertain about when and how to conduct source of funds and source of wealth checks. The findings show that despite high awareness of the rules, significant gaps continue to appear in practice across firms of different sizes. The regulator said it intends to work with HM Treasury to improve practical guidance for the profession.
The SRA examined three years of supervision activity and held discussions with 19 firms ranging from sole practitioners to large organisations. The aim was to understand how checks are carried out, the challenges encountered and the reasons for non-compliance. The review identified several obstacles, including client reluctance to share financial information due to cultural or privacy concerns and fee earner fears about upsetting long-standing clients.
The SRA said the level of non-compliance remained concerning. In the 2023 to 2024 period, 25 percent of 2,701 reviewed files that required checks contained no information showing they had been completed. In the 2024 to 2025 period, 11 percent of 5,026 files did not contain any checks at all. A further 18 percent contained information that had not been adequately scrutinised. In 8 percent of files the source of funds recorded in the ledger did not match the evidence obtained.
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The regulator said firms should maintain detailed audit trails for each matter, recording the approach taken to the source of funds and explaining why it was appropriate for the level of risk involved. Where checks are not performed, firms must record a clear justification. The SRA acknowledged, however, that many firms still need clarity regarding what constitutes a necessary check under the Money Laundering Regulations 2017.
HM Treasury has decided against changing the wording of the regulations to preserve flexibility but has asked regulators to provide clearer, sector-specific guidance. The SRA said professional judgement remains essential in applying the rules, but it will now work with HM Treasury and sector stakeholders to refine and clarify existing guidance. It warned that firms are responsible for ensuring they apply this guidance within their own risk-based systems.
The review also recognised the time-consuming nature of checks. It noted that not all firms are aware that the costs of customer due diligence may be passed on to clients, provided that this is explained in written terms. The regulator identified further challenges where clients are unwilling to use electronic verification tools or feel uncomfortable discussing personal financial matters.
The SRA highlighted examples of good and poor practice. It stressed that checks may still be required even when no money passes through the client account. This includes matters involving transfers of property for no payment or transactions structured to move assets between parties. The regulator warned that such arrangements may present high risks of money laundering where criminals transfer assets to conceal ownership.