Compliance Update January 2026

A new year brings new momentum. In our Q1 2026 update, we share the latest SRA rules and guidance as we step into the year ahead.

New/ updated rules and guidance from SRA

SRA Anti-money laundering report 2024-25

The SRA’s latest AML Annual report (published on 30/10/25) provides a critical reminder that there is still a long way to go before law firms are fully compliant. Given the likely stricter regime law firms will face once AML supervision moves to the FCA, the recommendations in the report should not be ignored. The headline finding reveals that almost one third of the firms were found to be non-compliant, with an additional 54% being only partially compliant. Whilst improvements have been seen, with SRA proactive engagements on the rise and the message that if your firm has not yet been reviewed, it will be soon, now is the time to get your AML house in order, particularly as the SRA’s next thematic review is on the perceived disconnect in firms between policies, controls and procedures (PCPs) and the reality on the ground.

Biggest AML weaknesses identified

Failure to perform/ properly document Client and Matter Risk Assessments (CMRAs)
Failure to carry out, analyse and properly document Source of Funds Checks
Inadequate/ ineffective PCPs – not being followed
Lack of/ inadequate Firm wide risk assessments (FWRAs)
Inadequate client due diligence (CDD) and failure to recognise (and carry out) when enhanced due diligence (EDD) is required

Recommendations to improve compliance

Strengthen risk assessments: conduct and document proper CMRAs for all in-scope files and ensure FWRAs are tailored to your firm.
Enhance due diligence and scrutiny: improve Source of Funds checks. Go beyond mere collection of documents and actively scrutinise the information gathered – does it make sense?
Review your controls and implement robust monitoring: Actively monitor staff compliance through regular internal file reviews, including in relation to source of funds.
Consistent CDD application and scrutinise the information you obtain.
Invest in training and supervision: staff are the first line of defence.
Senior management buy-in: Lead by example.

For our more detailed summary of the SRA’s report and current focus, with further tips to help you comply with SRA expectations, please read our blog here. This is not just for firms in scope of the Money Laundering Regulations, there is a lot on sanctions too!

SRA Thematic Review of source of funds and wealth compliance

We reported on the SRA’s Thematic Review in November (see our blog here) and would again recommend that it is worth a read, not forgetting the helpful resources for firms, including (non-mandatory) template forms, guidance for clients (on why you need to ask for this information), case studies (a great training resource which cover various common scenarios and provide helpful insights into the sort of evidence you should obtain, what to look for when analysing documents and further questions to ask), and an update to the SRA FAQs on this subject. We also appeared in Legal Futures talking about the subject in December.

Headline findings/ key takeaways

Understanding source of funds and wealth is a key AML control, even if the funds aren’t coming via your client account.
Ask where the money came from, how it was acquired (not just that you can see it in a UK bank account), do the documents match the explanation, does it make sense, do you need to report? The higher the risks, the more questions to ask/ documentary evidence to obtain.
Third parties funding transactions (in full or in part) should be identified, verified and their source of funds checked (as you would a client).
Check for any disconnect between the information collected and from where the funds are actually received. Last minute changes are a red flag!
ALWAYS document your thought process, including how you have scrutinised the evidence collected. Don’t just file bank statements etc away – read them!
If you can’t complete your CDD measures, including SoF checks, you must not carry on with the transaction.
The costs of CDD, including source of funds checks, can be passed to clients, as long as they know in advance.

Warning Notice: Suspicious Activity Reports

The SRA updated its warning notice on Money laundering and terrorist financing suspicious activity reports (SARs) on 24/11/25. It sets out the SRA’s concerns about firms submitting poor quality SARs with inadequate information provided, and their expectations regarding compliance with SRA Standards and Regulations and NCA guidance. On closer inspection, the changes to the Warning Notice are only to be found in the ‘Further help’ section, providing a link to the UKFIU’s updated library of information on how to make SARs, but it’s a good reminder to have a re-read of it and ensure that your SARs and DAML SARs are up to scratch . (The Law Society also updated its Guide to Suspicious Activity Reports on 26/11/25).

SRA Compliance Officers Thematic Review

The SRA’s first thematic review of compliance officer roles (COLPs and COFAs) highlights risks affecting firms’ compliance effectiveness. It covered only 25 firms (out of 9,000), so findings may not fully represent the profession, but general themes and challenges emerged:

Key issues for compliance officers

Time constraints
Lack of support from the rest of the firm and management
Insufficient resources/ prioritisation of role-specific training
Lack of recognition

Notable findings

Roles are usually split between individuals, requiring strong communication.
Officers often stay in role due to lack of volunteers, not enthusiasm.
Few receive incentives; succession planning is rare.
75% are firm owners—raising independence concerns.
Many COLPs couldn’t list their five obligations; record-keeping was poor.
Systems and policies exist, but breach documentation and reporting are weak.
Engagement with SRA resources and training is low.

Recommendations for firms and compliance officers in light of the review

Value compliance roles to strengthen culture and efficiency.
Educate staff: compliance is a firm-wide responsibility.
Appoint deputies and plan for succession.
Understand reporting duties; use SRA resources.
Keep detailed records of breaches and training.
Explore tech solutions for compliance management.
Conduct regular file reviews and audits.

The SRA plans a broader review of the effectiveness of the compliance officer regime – will it bring real change? For a more detailed exploration of the thematic review, see our blog here.

Hot topics

Anti-money laundering, sanctions & financial crime

Next SRA AML-related thematic review

2026 will see the SRA focussing on Anti-Money Laundering Policies, Controls & Procedures (PCPs) and how they are implemented on the ground. During their latest engagements with firms, they have noticed a disconnect between what the PCPs say and what people are actually doing. No matter how comprehensive your AML PCPs are, if they are gathering (metaphorical) dust and being ignored, they are not worth the paper (corner of your intranet) they are written on. Regulation 19(3)(e) MLRs mandates that PCPs must include “the monitoring and management of compliance with, and the internal communication of, such policies, controls and procedures”. The SRA will be focussing on this so now is the time to ask yourselves whether you are comfortable that you would notice if staff are not complying with your PCPs. What controls do you have in place to monitor this and what action do you take if you discover non-compliance? The SRA will likely be looking at:

Whether PCPs are tailored to your firm and understood by staff. Staff should know they’re more than admin – they safeguard against illegitimate client requests
AML training – tailored to your firm and staff
Regular file reviews to check people are complying with expectations
Whether file reviews include a review of source of funds/ wealth checks (spoiler alert – they should!) and check for properly completed client and matter risk assessments (CMRAs)
Whether you are able to spot weaknesses before they do!
Whether you raise AML compliance with staff in appraisals/ one to ones/ team meetings etc

Again, get your house in order now BEFORE the SRA visit as part of their thematic review and to help prepare for the change over to FCA AML supervision.

FCA AML supervision

As we reported to clients in October and December, the Government has announced a major regulatory shift, with its plans to transfer the responsibility for AML supervision of solicitors from the SRA to the Financial Conduct Authority (FCA). Although this transition is expected to “take a number of years”, there have been suggestions that we could see legislation in place as soon as August 2027 to coincide with the next Financial Action Task Force (FATF) assessment of the UK, albeit with a transition period thereafter.

The promised consultation on the FCA’s powers closed on 24/12/25 and we will be watching closely for the outcome. It is hoped that input from the legal profession (and others) will help the government and FCA address concerns that could significantly impact law firms if overlooked, such as regulatory duplication, loss of legal sector-specific AML expertise, and a disproportionate “one-size-fits-all” approach that ignores operational differences between law firms, accountants, banks etc. Feedback from HMT’s online December roundtables suggests much remains unresolved, and concerns need to be taken more seriously than appearances so far suggest. You can read The Law Society’s response to the consultation here and the Solicitors Disciplinary Tribunal’s response here.

There are still many unknowns so, for now we recommend that you:

Stay aligned with SRA AML expectations (see our thoughts above on their latest AML report), standing you in good stead for whatever changes are coming, and helping you avoid unwanted SRA attention in the meantime.
Start capturing AML data if you don’t already, e.g. exposure to high-risk jurisdictions, PEPs, sanctions, other high-risk issues; number of in-scope matters; instructions declined because outside risk appetite; internal & external suspicious activity reports (SARs). The FCA is data-driven, and the SRA are increasingly becoming so. Consider discussing this with your software provider.
Watch for further updates.

High Risk Third Countries (HRTC)

The list of High-Risk Jurisdictions for AML purposes changed on 24 October following the update to the Financial Action Task Force (FATF)’s ‘black’ and ‘grey’ lists. The updated lists can be found on the FATF website or the Law Society website. This time no countries were added but 4 were removed: Burkina Faso, Mozambique, Nigeria and South Africa.

The SRA updated its AML obligations guidance and information page on 4/12/25 in relation to historic high-risk third countries, noting that even if a country is no longer considered high-risk, its past designation can indicate vulnerabilities or structural weaknesses when it comes to tackling money laundering, and includes best practice recommendations when dealing with such countries (e.g. EDD is still likely to be required, just not necessarily to the standard set out in Regulation 33(3A)). It includes a helpful table showing when countries were added to/ removed from the list and whether they are still current. Another resource to consider when risk assessing clients and matters with connections to overseas countries.

Changes to Money Laundering Regulations – Register of Overseas Entities (ROE)

Two changes to the MLRs 2017 came into force on 18/11/25:

Regulation 28 now clarifies that the ROE cannot be solely relied upon for the purposes of verifying beneficial ownership (just like relying solely on the PSC register at Companies House is not allowed); and
Regulation 30A now states that discrepancies noticed on the ROE must also be reported to Companies House (just like discrepancies noticed in the PSC register must be reported).

Over-reliance on e-verification providers

We recently became aware of a case where an e-verification report did not deliver the result expected, with our law firm client subsequently being alerted to an issue which, had they known about it at the outset, would have likely resulted in their rejecting the instruction. Suffice to say, the explanation from the provider was unsatisfactory and the firm is now looking at an alternative provider. They were told that in addition to their report, the firm should also be undertaking a separate adverse media check via Google, which would have picked up the issue. Please treat this as a reminder to ensure you are familiar with how your provider works and discuss with them how any gaps in their processes need to be filled by your own internal procedures.

Sanctions – what to expect next from the SRA

On 11/11/25, the SRA announced next steps after reviewing sanctions data from its recent AML & Sanctions Questionnaire exercise:

Guidance letters will go out to 490 firms flagged for weak sanctions controls – likely those without a written sanctions risk assessment or client screening process.
Desk-based reviews will target firms with clients linked to sanctioned countries or offering higher sanctions-risk services. This applies to all firms, not just those in scope of the Money Laundering Regulations.
Sanctions compliance checks will continue as part of AML inspections.

Action points:

Check your inboxes and junk folders for SRA emails
If you lack a written sanctions risk assessment, client screening policy, or updated documents, now’s the time to act! Our template documents can help so do get in touch.

UK Sanctions List

From 28/1/26, to avoid duplication of effort and simplify checks, the OFSI Consolidated list (the free list we have all got used to using) will be retired (and no longer updated), with the UK Sanctions list being the comprehensive source of UK sanctions designations, including financial, immigration, trade and transport sanctions. The government recommends that you start using the UK Sanctions List immediately and has published guidance on how to prepare for the change. Ostensibly, ensure that staff and your electronic screening provider are aware of this (and are making the necessary changes to avoid any disruption to your service) so that the correct lists are being utilised going forwards, and no designated persons slip through your screening net.

OFSI General Licence

The Office of Financial Sanctions Implementation (OFSI) issued a new General Licence with effect from 28 October 2025 (replacing previous general licences), permitting UK law firms to receive payment for legal services provided to designated persons, without needing to obtain an individual OFSI licence. If you carry out any work and rely on general licences, ensure you understand the terms of the new licence and update your policies accordingly. For further information, see here.

Companies House – ID verification and ACSP regime

ID verification

As we reported in our October Compliance Update (here), the Economic Crime and Corporate Transparency Act 2023 (ECCTA) gave new powers to Companies House with the aim of making them more of a gatekeeper against economic crime than a passive repository of company data. Since 18/11/25, directors and Persons with Significant Control (PSCs) have been required to verify their identity with Companies House before they can establish companies or file documents (in relation to new and existing companies). If you are a director or a PSC of a company (including your own law firm) (or have clients who are) and you haven’t already done so, we urge you to verify your identity with Companies House immediately to avoid filing delays or criminal liability. The ECCTA regime is separate to the AML regime and the LSAG guidance reminds us that firms cannot rely solely on Companies House data for client due diligence. So, keep complying with your obligations under the Money Laundering Regulations!

ACSP regime

From spring/ summer 2026 (the exact date is not yet known) only Authorised Corporate Service Providers (ACSPs) will be able to file information at Companies House. Separately, (from now) if you wish to verify clients’ identities at Companies House on their behalf, you must also be registered as an ACSP.

Please see our blog here for further details about the ACSP criteria and whether to register as one, and the Companies House ID verification requirements.

Law firm management

Mazur and the conduct of litigation – SRA’s updated guidance

On 11/12/25 the SRA updated its guidance on the implications of the Mazur judgment on the conduct of litigation by adding a new section dealing with their approach to enforcement, stating: If you conclude that you have been operating incorrectly in the past, you can make a self-report to us (by email or telephone). While each case turns on its own facts, we will treat sympathetically self-reported incidences of genuine error based on mistaken interpretation of the law, prior to us publishing this page on 20 October 2025. If you are conducting a reserved activity without authorisation and have not addressed the implications of the judgment and our guidance, you can expect us to use appropriate investigative and enforcement powers to identify and address this misconduct.

The message appears to be that you should think very carefully about whether you should self-report pre-Mazur breaches and, if you haven’t already changed your processes to ensure compliance with the Legal Services Act 2007 and the Mazur ruling, you should do so immediately to avoid the SRA coming for you!

CILEx has been given permission to appeal, with the Court of Appeal hearing listed for the end of February, and both the SRA and The Law Society have been given permission to intervene. However, our advice is not to await the outcome of the appeal before considering whether to self-report. For our full thoughts on this latest update from the SRA, please see our blog here.

FSCS Deposit protection limit increase

From 1/12/25 the Financial Services Compensation Scheme (FSCS) deposit protection rose to £120,000 (from £85,000), meaning that if you hold deposits or savings with a UK-authorised bank, building society or credit union and it goes out of business, FSCS can compensate you up to the new limit per eligible person, per authorised firm. FSCS also protects temporary high balances because of a ‘qualifying life event’ (such as the proceeds of a house sale, receiving an inheritance or a redundancy payment) for a period of up to 6 months up to the new limit of £1.4 million (previously £1 million). These protections apply to money held on behalf of clients in your firm’s client account, and information should be provided in your terms of business about them and the updated figures. Further information can be found on the FSCS website here and the Law Society’s updated Practice Note here.

First-tier complaints – SRA consultation response

Since going to press, in a surprise move, the SRA has withdrawn the proposed rule changes set out below in relation to complaints handling by law firms, apparently because the Legal Services Board had indicated they would not approve them in their current form after all. So, law firms have a reprieve for the time being in terms of updating their complaints processes. However, complaints are still very much on the SRA’s radar and ensuring your processes are workable, complaints information is easily accessible to clients and that complaints are resolved in a timely and effective fashion, is still very much to be recommended and expected by the SRA and Legal Ombudsman. Watch this space for further updates.

We reported in our July update that the SRA was consulting on proposed changes to their rules in relation to complaints, following their information-gathering exercise at the start of the year. The consultation response and thematic review were published in October and the SRA are awaiting approval from the Legal Services Board (LSB) for the various regulatory changes they want to make. We are expecting a response from the LSB imminently and there will be a 3-month implementation period from the date of formal approval to get your house in order, so watch this space. The SRA is also planning to produce further guidance and case studies to help firms comply with the new obligations.

SRA decisions/ what to expect:

Providing complaints information to clients: On conclusion of their matter, as well as at the outset, on request and if a complaint is made during the matter. The latter two make sense and probably what everyone has been doing anyway, but having to provide it again at the end of a matter is much more controversial. It is hard to think of any other area of life where you are provided with guidance on how to complain when you have finished with the service but the SRA’s view is that it is necessary to improve “consumer knowledge and confidence in complaining” and can simply be provided with your client feedback forms. A little re-write of your file conclusion letter will be required .
SRA Transparency Rules: To be amended to require that complaints information is clear, accessible and in a prominent place on a firm’s website (like the current rules in relation to pricing information). A website refresh may be required to ensure your complaints information isn’t hidden away
LSB definition of a complaint: This will be added to the SRA’s glossary of defined terms. Given this definition is the same as used by the Legal Ombudsman (LeO)) and has been used by most firms a for many years, this is probably the least controversial change. For ease of reference, the definition is: An oral or written expression of dissatisfaction, which alleges that the complainant has suffered (or may suffer) financial loss, distress, inconvenience, or other detriment.
Data collection: The SRA will start collecting ‘timeliness data’ from firms in early 2026 about how long it takes them to resolve complaints, with a view to publishing this data in due course, “to inform consumers and raise awareness of their right to complain”. Reviewing your complaints handling processes would be a sensible step to take in advance.
Model complaints resolution procedure/ guidance: The SRA is working on the model procedure with LeO and looking to supplement SRA existing guidance, such as publishing complaints procedure. There will be a further consultation on these in due course. These proposals are generally welcomed by the profession as helpful tools, albeit there is little appetite for the model to be mandatory. A draft of the SRA complaints handling guidance was submitted with their application to the LSB.

Three months isn’t long, so starting to think about the changes you will need to make to your complaints processes now would be wise. Do get in touch if you need any help.

Protecting client money – further SRA consultation

As previously reported, the SRA’s Consumer Protection Review launched in February 2024 following the Axiom Ince scandal received widespread backlash in relation to the proposals regarding how and when law firms should hold and handle client money. Some commentators had thought that the suggestion about doing away with solicitors’ client accounts might have been kicked into the long grass. However, that does not appear to be the case. Following the LSB’s independent report into Axiom Ince and the directions given to the SRA in light of their failings, the SRA published its implementation plan (which we reported on in our October update), which included further consultations, the first of which was published on 11/12/25 (following a live webinar summarising its aims, which can be viewed on demand here). Although the SRA is focussing in the short term on more immediate improvements to the current regime (and to specifically address the LSB’s directions), they have made it clear that their concerns about solicitors holding client money and interest on client accounts remain substantial and they will be returning to this at a later date (so no long grass in sight!).

Current key focus/ proposals:

Accountants’ reports regime – to revert to requiring all reports to be submitted to the SRA (whether qualified or not) to check compliance with the regime, potentially making it the reporting accountants’ responsibility to submit them, together with mandatory annual declarations regarding firms’ compliance with Accounts Rule 12, and fixed penalty fines for late or non-existent submissions.
Checks and balances in firms – to avoid concentration of ownership, management and compliance roles in one person, in larger firms (turnover of over £600K and/ or client money of over £500K) unilateral decision makers (not defined) will not be able to hold COLP or COFA roles (albeit sole practitioners who only meet the client money criteria but not the turnover one, would be able to be a COLP, but not a COFA).
Improving oversight of the changing profiles of firms – there will be a further consultation to address concerns about sales, mergers, acquisitions (given the Axiom Ince scandal) or any other major change to a firm’s risk profile (such as a new practice area resulting in greater involvement with client money).

If you have any views or concerns about the SRA’s proposals, get your thoughts into the consultation process before the deadline on 20th February 2026.

Solicitor professional ethics

Ethics have been a hot topic over the last year or so due to concerns from all angles that solicitors are somehow forgetting them! The SRA has brought together a range of resources in their website Hot Topics section to help firms navigate the ethics maze. It includes a short summary of why ethics are important, how failing to act ethically can lead to scandals like the Post Office, and the importance of the SRA Principles, followed by a collection of ethics-related materials (Warning Notices, Guidance, Thematic Reviews etc) grouped by topic, including SLAPPs, NDAs, in-house solicitors, Conflicts, immigration and sexual misconduct. If you need any Ethics Training, please do get in touch.

Conflict of interests

The Law Society updated its Conflict of Interests Practice Note at the end of November which is worth a read, setting out how to identify and manage situations where a conflict arises or where there is a significant risk of a conflict occurring.

Goodbye ‘Dear Sirs’

In case you missed this a few months ago, the Law Society updated its guidance on diversity and inclusion language to ask members to stop using the words ‘Dear Sirs’ at the start of letters and emails. Alternative suggestions include, ‘Dear legal team’, ‘Dear all’, ‘Greetings’, ‘Good morning’. It also references the SRA’s Principle 6 which requires solicitors and those working in law firms to act in a way that encourages equality, diversity and inclusion and their guidance on how to comply with Principle 6.

TA6 Property Information Form – attention Conveyancers!

The Law Society is replacing the TA6 form with a 6th edition and it will be mandatory for Conveyancing Quality Scheme (CQS) members to use it from 30/3/26. For full details, see the Law Society’s website here.

Tribunal trends and cases of interest

When solicitors slip up… big and small-time

A former solicitor has been refused restoration to the roll 16 years after being struck off for 13 proven allegations, including six of dishonesty involving accounts and anti-money-laundering breaches. The SDT acknowledged he had worked in authorised roles since 2020 but found his training appeared rushed before the application rather than showing long-term professional development, and his evidence lacked adequate documentation. Concluding he had not met the high threshold for restoration, the tribunal also ordered him to pay over £4,700 in costs.
London-based firm was fined £23,588 after the SRA found it failed to fully verify funds for a foreign PEP client across 194 matters. Despite substantial checks, some source-of-wealth enquiries were inadequate. The risk was deemed low, but enhanced measures were not fully compliant. The firm also agreed £1,350 costs.
Dishonestly securing a loan for his security firm by impersonating a fellow director, faking signatures, and making them an unwitting guarantor… led a solicitor to be struck off. The tribunal ordered him to pay £7,603 in costs.
A magistrate received formal advice for misconduct after using inappropriate language, sighing and showing visible frustration during a family court hearing. Witnesses reported negative attitudes and expressions of irritation, though the magistrate denied intentional misconduct and attributed issues to late legal advice and incomplete bundles. She apologised and highlighted her previously unblemished five-year record. The investigation found her behaviour caused embarrassment and affected the working environment.
A solicitor was struck off after deceiving a client into believing he was authorised to practise, taking £4,525 for a criminal appeal that was never pursued. He fabricated a barrister, failed to refund the money, and did not co-operate with regulators. Despite significant personal hardship and remorse, the SDT found his dishonesty incompatible with the profession.
£15,000 was the fine handed to a solicitor for failing to spot fraud and money-laundering red flags on two loans totalling £464,000. Though not dishonest, he facilitated suspect transactions and breached money-laundering rules. The SDT withdrew an incompetence charge but criticised his judgment, noting prior misconduct, and ordered £35,300 costs.
The High Court criticised a solicitor for wrongly advising a personal injury client to covertly record an opponent’s medical testing, breaching an agreement not to do so. Despite condemning the conduct and stressing the importance of trust between lawyers, the court allowed the evidence, finding the claimant blameless and noting the defence expert had inadvertently recorded the testing himself.