The UK Government has formally announced its intention to reform the Money Laundering Regulations (MLRs) by the end of 2025, aiming to reduce regulatory burdens and improve effectiveness while maintaining robust defences against financial crime.
In its Professional and Business Services Sector Plan, published as part of the UK’s broader Industrial Strategy, the Government acknowledged concerns within the professional services sector that AML rules are overly complex and burdensome. The plan states:
“The MLRs are a vital tool in safeguarding against money laundering and terrorist financing risks in the PBS sector, protecting the UK’s status as a global business destination. However, the Government recognises the importance of ensuring the MLRs are clear and proportionate to the risks.”
As part of its commitment to regulatory reform, the Treasury has pledged to:
- Introduce a package of changes to the MLRs before the end of 2025.
- Encourage the use of digital identity to streamline client due diligence and verification processes.
- Clarify guidance for regulated sectors in relation to the MLRs.
These changes are explicitly intended to align with the Government’s broader goal of reducing the administrative cost of regulation by 25% by the end of the current Parliament.
Legal sector reaction to the AML changes
The Law Society of England and Wales welcomed the announcement. Its president, Richard Atkinson, reiterated the need for:
- A proportionate and clear AML framework
- Specific recognition of the challenges faced by smaller law firms
- A risk-based and targeted approach to compliance that avoids unnecessary burdens on legal professionals.
Atkinson emphasised that while legal professionals are committed to preventing financial crime, AML rules must be balanced and fair to remain effective without impeding access to justice or placing undue strain on firms.
The announcement comes amid increased enforcement by regulators such as the Solicitors Regulation Authority, and growing concern over the cost-benefit of AML compliance. The government’s plan reflects broader themes in its industrial strategy: seeking to maintain the UK’s status as a trusted global hub while modernising regulation for technological efficiency and international competitiveness.
This upcoming AML reform is one of several measures aimed at supporting the UK’s professional services sector, which contributed £300 billion to the economy in 2024.
What could AML reform look like?
While no formal proposals have yet been published, any discussion about potential changes remains speculative. However, based on long-standing feedback from the legal and professional services sectors, there are several likely areas for reform.
It’s important to note that any changes will need to be carefully calibrated. With the UK’s next mutual evaluation by the Financial Action Task Force (FATF) on the horizon, there are limits to how far simplification can go without risking non-compliance with global benchmarks. The UK must demonstrate that its AML regime remains effective, proportionate, and risk-based.
That said, several reform ideas have gained traction among legal professionals and could plausibly form part of the Government’s forthcoming proposals:
A unified approach to enhanced due diligence (EDD)
Currently, the MLRs prescribe multiple overlapping EDD regimes:
- Standard EDD
- EDD for high-risk third countries
- EDD for politically exposed persons (PEPs)
- Separate provisions for domestic PEPs
Consolidating these into a single, risk-calibrated EDD framework would reduce duplication, eliminate unnecessary confusion, and still preserve high standards where warranted.
Removal of duplicate criminal record checks for solicitors
Under the current regime, solicitors taking up roles as beneficial owners, officers, or managers of regulated firms are subject to Disclosure and Barring Service (DBS) checks, despite already having undergone a rigorous “fit and proper” assessment by the Solicitors Regulation Authority. Many in the legal sector argue this is a redundant burden. Removing this requirement would streamline onboarding without weakening oversight.
Clarification on source of funds checks
The MLRs requires firms to examine the source of funds “where necessary,” a term that has created significant uncertainty in practice. Defining specific triggers or scenarios that mandate source of funds checks, such as transaction thresholds or client risk indicators, could provide welcome clarity and reduce inconsistent application across firms.
Harmonised risk assessment templates
Mandating a standardised format for firm-wide and client-level AML risk assessments would reduce ambiguity and enable more consistent oversight by supervisors such as the SRA. Currently, firms are required to conduct these assessments under Regulation 18 of the Money Laundering Regulations, but there is no uniform structure or required content. This leads to wide variation in how firms identify and record risks, making it difficult for regulators to assess compliance on a consistent basis.
A standardised template; setting out minimum criteria such as client risk factors, service type, delivery channels, geographic exposure, and mitigation measures, could help address this. It would give firms greater clarity on expectations while supporting more efficient and targeted supervision. Smaller firms in particular would benefit from a clear framework, reducing the risk of omissions and unnecessary enforcement for technical failings.
Greater reliance on digital ID and open banking tools
The Government has already signalled support for digital identity verification as part of its wider commitment to reducing regulatory burdens and encouraging the adoption of new technologies. In the context of AML compliance, digital ID tools offer a secure, efficient, and often more reliable way to verify client identity, particularly in remote or cross-border engagements.
Legal professionals would likely welcome a clear framework that officially endorses specific digital ID solutions, sets technical and security standards, and clarifies how such tools can satisfy AML obligations. This would help remove uncertainty around whether digital methods meet regulatory requirements, reduce reliance on manual document checks, and streamline onboarding processes, especially for smaller firms with limited compliance resources.
Streamlined SAR reporting obligations
Many firms struggle with the administrative complexity of submitting Suspicious Activity Reports (SARs), particularly when deciding whether a report is legally required or simply precautionary. The current regime often incentivises defensive reporting, leading to high volumes of low-quality or low-risk SARs that can overwhelm enforcement agencies and offer limited intelligence value.
Introducing clearer thresholds for reporting obligations, such as defined indicators of suspicion or materiality, and safe harbour provisions for low-risk technical breaches could help refocus efforts on genuinely suspicious activity. This would improve the overall quality and usefulness of SARs, reduce the compliance burden on firms, and enable law enforcement to better allocate resources to higher-risk cases.
Clearer definition of “Ongoing Monitoring” obligations
Many firms are unclear about what constitutes sufficient ongoing monitoring of a client relationship. Providing more precise guidance or thresholds, e.g. what events trigger a review, how often low-risk clients need updating, or how far back monitoring must go, would improve consistency and reduce unnecessary work, especially for long-standing, low-risk clients.
Safe harbour for reliance on regulated third parties
Although Regulation 39 allows firms to rely on certain third parties for customer due diligence, many firms avoid this route due to perceived risk and liability. Clarifying or expanding safe harbour provisions could encourage legitimate reliance where appropriate, e.g. relying on another UK law firm or accountant, reducing duplication and improving efficiency across the sector.
Further simplification for low-risk services
Not all legal services carry the same level of money laundering risk. A tiered or simplified approach for services like uncontested probate or low-value employment advice could exempt them from full CDD requirements or allow for reduced checks, provided no red flags arise. This would better align obligations with actual risk.
What will the AML reforms come into effect?
No draft legislation or detailed proposal has been published as of June 2025. However, the Treasury has confirmed that it intends to bring forward a package of changes to the Money Laundering Regulations before the end of the year. The planned reforms are expected to focus on simplification, greater clarity for regulated firms, more proportionate obligations, and the adoption of digital tools such as digital identity verification.
While the precise content and format of these changes remain unknown, a likely timeline could see a public consultation launched in autumn 2025, followed by the publication of revised regulations or statutory instruments in late Q4. Depending on parliamentary scheduling and implementation logistics, the updated rules could come into force in early 2026, possibly with transitional periods for compliance.
