FCA’s New AML Mandate: A Structural Shift with Far-Reaching Implications for Financial Crime Supervision

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In October 2025, HM Treasury confirmed a long-anticipated but controversial reform to the UK’s anti-money laundering (AML) supervision framework: the Financial Conduct Authority (FCA) will assume sole responsibility for supervising AML compliance across a wide range of professional services, including the legal sector. The move, following a consultation launched in 2023, establishes the FCA as the Single Professional Services Supervisor (SPSS) and removes AML supervisory responsibilities from long-standing sectoral bodies such as the Solicitors Regulation Authority (SRA) and the Law Society of Scotland.

The announcement represents one of the most significant restructurings of the UK’s financial crime oversight regime in over a decade. While the government has framed the reform as a simplification and strengthening of the UK’s defences against money laundering, early reactions from the legal profession and regulatory commentators suggest a far more complex picture, one that raises fundamental questions about proportionality, effectiveness, cost, and regulatory design.

Why the Government Acted: Fragmentation, Consistency, and International Pressure
At the heart of the reform lies a long-standing criticism of the UK’s AML supervisory model: fragmentation. Prior to the announcement, more than 20 professional body supervisors were responsible for AML oversight across legal, accounting, and other professional services. International assessments, including those by the Financial Action Task Force (FATF), have repeatedly highlighted uneven supervisory quality, inconsistent enforcement, and variable risk understanding across these bodies.

By centralising AML supervision within the FCA, the government aims to deliver greater consistency, stronger deterrence, and clearer accountability. The move also aligns with a broader policy narrative: strengthening economic crime controls while simultaneously reducing what the Chancellor described as “business bureaucracy” through rationalisation and digitisation.

However, the contradiction of tougher AML supervision alongside lighter-touch corporate reporting has not gone unnoticed.

Legal Sector Concerns: Proportionality and Sector Understanding

Reaction from the legal profession has been swift and largely sceptical. Representative bodies argue that the FCA’s financial-sector DNA may not translate well to the realities of legal practice, particularly for small and sole-practitioner firms.

The SRA, for example, had developed a tailored AML supervisory model over nearly two decades, combining education, thematic reviews, and increasingly assertive enforcement. By 2023, it supervised more than 6,000 firms and over 23,000 beneficial owners, officers, and managers, supported by a dedicated AML team and a multi-million-pound budget. While far from perfect – as evidenced by persistent deficiencies in firm-wide risk assessments – the SRA’s approach was rooted in a detailed understanding of legal services risk typologies.

Critics argue that imposing a financial-services-oriented regulator on the legal sector risks replacing targeted supervision with standardised compliance expectations. The fear is not deregulation, but over-regulation: duplicated reporting, increased formality, and a shift from judgement-based risk management to rule-driven compliance.

In Scotland, concerns are even more pronounced, given the distinct legal system and the Law Society of Scotland’s enhanced regulatory powers. The prospect of a London-centric regulator supervising thousands of small law firms has raised doubts about supervisory effectiveness and accessibility.

Cost, Complexity, and the Risk of Regulatory Burden Creep

One of the most persistent themes in stakeholder commentary is cost. AML supervision is not free, and under the SPSS model, the FCA’s expanded remit will need to be funded, ultimately by supervised firms.

There is apprehension that economies of scale may not materialise as hoped. Instead, firms may face higher fees, more extensive data requests, and parallel interactions with multiple regulators during a lengthy transition period. For smaller firms, particularly those already struggling with rising professional indemnity insurance and compliance costs, this could accelerate consolidation or market exit.

From a consumer perspective, these costs are unlikely to be absorbed quietly. As several commentators have warned, increased regulatory overheads tend to be passed on to clients, raising access-to-justice concerns at a time when affordability of legal services is already under strain.

A Harder Edge on Enforcement?

One area where the FCA’s involvement could prove transformative is enforcement intensity. The FCA has a well-established reputation for assertive financial crime supervision in banking and investment firms, underpinned by data-driven risk assessment, intrusive reviews, and public outcomes.

If this approach is extended to professional services, firms may see a marked increase in thematic reviews, skilled-person style assessments, and sanctions for weak AML frameworks, even in the absence of proven money laundering. The FCA’s long-standing focus on systems and controls failures suggests that “technical” non-compliance may attract greater scrutiny than under previous models.

This raises an important strategic implication: AML compliance for professional services is likely to become more formalised, more documented, and more closely aligned with financial-sector expectations. Firm-wide risk assessments, already a weak point under the SRA, are likely to become a primary supervisory entry point.

Broader Implications for the UK’s Financial Crime Framework

Beyond the legal sector, the FCA’s new mandate signals a broader recalibration of the UK’s approach to economic crime. Centralisation offers the potential for improved intelligence sharing, better alignment with law enforcement, and a more coherent national risk picture.

However, success will depend heavily on execution. The transition from multiple supervisors to a single authority carries material operational risks: loss of sector-specific expertise, supervisory bottlenecks, and short-term confusion over expectations. The FCA will need to demonstrate not only toughness, but adaptability by developing differentiated supervisory strategies that recognise the diversity of professional services business models.

Crucially, representative bodies such as the Law Society will need to remain closely involved in shaping guidance and risk typologies. Without this collaboration, there is a real danger that AML supervision becomes an exercise in compliance optics rather than crime prevention.

A High-Stakes Experiment in Regulatory Design

The FCA’s assumption of AML supervision marks a decisive shift in the UK’s financial crime architecture. It offers the promise of greater consistency, credibility, and international confidence, but also carries significant risks around proportionality, cost, and sector fit.

For firms, the direction of travel is clear: expectations will rise, documentation will matter more, and financial crime risk management will increasingly resemble that of regulated financial institutions. For policymakers and regulators, the challenge will be to ensure that centralisation enhances effectiveness without eroding the nuanced, risk-based supervision that professional services require.

Ultimately, the success of the SPSS model will be judged not by the elegance of its structure, but by whether it meaningfully reduces money laundering while preserving a competitive, accessible, and well-functioning professional services sector. The next two to three years will be critical in determining whether this reform becomes a benchmark for smart regulation, or a cautionary tale in regulatory overreach.