The SRA's AML report: better compliance, but the same weak spot on source of funds
On 23 October, Legal Futures reported the SRA's annual anti-money laundering report for the year to 6 April 2026. The headline is good news. The detail is a reminder of where small firms still trip up.
The improvement is real
The SRA carried out a record 966 AML compliance assessments in the year. The proportion of firms assessed as non-compliant fell from 32% to 22%.
Compliance with the firm-wide risk assessment rose from 47% to 60%. Compliance with policies, controls and procedures rose from 38% to 54%. Files with a missing or inadequate client and matter risk assessment fell from 16% to 9%.
Alexandra Jones, the SRA's director of AML, said there was "encouraging evidence that firms are increasingly embedding AML requirements into their governance frameworks and day-to-day operations".
That is worth saying out loud, because the usual coverage of AML is fines.
The weak spot is still the file
Of 6,592 files reviewed, 5% had no evidence that the client had been identified and verified. 9% had no source of funds checks at all. And where documents had been gathered, the source of funds had not been scrutinised in 18% of files.
Ms Jones put it this way: many of the issues related "not to the absence of controls, but to the quality and application of those controls in practice". She added that source of funds enquiries, risk assessment processes and ongoing monitoring "continue to be areas where further improvement is required".
The SRA's thematic work on source of funds and source of wealth also stressed that firms should not just obtain evidence but "critically assess and understand the information they receive".
That last point matters. A bank statement on the file is a document. Knowing why the money in that statement is where it is, and whether it makes sense for this client, is a check.
What went wrong at the firms that were fined
The SRA reported 145 regulatory settlement agreements for AML breaches in 2025 to 2026, with fines totalling £2m. Its adjudicators issued 14 further fines totalling £364,000, and eight cases went to the Solicitors Disciplinary Tribunal, ending in one strike-off, one suspension and six fines. In total that makes £2,592,000.
The themes the SRA drew out of those cases were:
failing to review and refresh AML controls
failing to audit procedures and keep records
failing to supervise more senior team members
insufficient senior management oversight of compliance
inadequate training of fee-earners
systems that "allow events to happen unchecked", such as receiving funds or moving to the next stage of a transaction without an automated stop when customer due diligence has not been done
None of that is exotic. It is the ordinary business of running a firm, done a little less carefully than it should be.
The report also notes that sanctions cases tripled in the year, mostly because of human or administrative errors rather than deliberate misconduct.
A 20 minute test for your own files
These are my suggestions, not SRA requirements. Pick three recent files from different fee earners, including one from the most senior person in the firm. For each one, ask:
Can I see who the client is and how we verified them? Not a note saying it was done, but the evidence.
Can I see where the money came from? Source of funds and, where relevant, source of wealth.
Does the file show someone thinking about it? A short note saying why the explanation made sense, or why it did not, is worth more than another attachment.
Could the file have moved forward without the check being done? If yes, that is the "unchecked" gap the SRA describes.
When did we last refresh the firm-wide risk assessment? Six firms in the SRA's assessments had none at all, although the requirement is over nine years old.
If a file fails one of these tests, that is a finding, not a failure. It is far better to find it on a Tuesday afternoon than in a desk-based review.
Why this matters now
The SRA says 5,422 law firms fell within the scope of the money laundering regulations at 6 April 2026, around two-thirds of the firms it authorises. In the same year it referred 206 non-compliant firms for investigation and required 52 more to put a compliance plan in place.
Alongside the report it published new guidance on policies, controls and procedures. I have not yet read it in full, and I would read it before your next review.
Start with a conversation
If you would like an independent view of where your firm stands on AML and wider compliance, I offer a free health check, with no obligation. Get in touch and we can arrange a time to talk it through.
The contact page is an enquiry form, so please put "free health check" in the message subject and I will pick it up straight away.
Ashley Barwick is a Fellow of the Chartered Institute of Legal Executives and a Law Society accredited Lexcel Consultant. This post is general information and does not constitute legal advice. Fraxinus Business Associates is not authorised to provide legal advice.
Sources
Legal Futures, "AML compliance improving but solicitors still fined £2.6m", Neil Rose, 23 October 2026. https://www.legalfutures.co.uk/latest-news/aml-compliance-improving-but-solicitors-still-fined-2-6m
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