The Solicitors Regulation Authority (SRA) has released a new Thematic Review of Source of Funds and Wealth Compliance and its findings are both revealing and urgent. Despite over seven years of the Money Laundering Regulations 2017 being in force, the SRA remains concerned by persistently high levels of non-compliance across the legal sector.
Why this review matters
Law firms are on the frontline of the UK’s defences against money laundering and terrorist financing. Criminals target legal professionals precisely because they are trusted intermediaries capable of processing large sums and making complex transactions appear legitimate.
The SRA’s review, based on data from over 5,800 client files reviewed between 2024 and 2025, found that:
- 11% of files lacked any source of funds checks.
- 18% showed inadequate scrutiny of the evidence collected.
- 8% contained inconsistencies between the evidence and the ledger records.
These figures are an improvement on previous years, but they remain a cause for concern. Even firms that collected documents often failed to assess or record their rationale, leaving compliance gaps and exposing themselves to potential breaches under the Proceeds of Crime Act 2002 (POCA).
Understanding Source of Funds vs. Source of Wealth
The review reinforces a distinction that’s too often blurred in practice:
- Source of Funds (SoF) refers to where the specific money used in a transaction came from such as a salary, sale of an asset, inheritance or business income.
- Source of Wealth (SoW) concerns the origin of a person’s overall wealth as in how they accumulated their assets and income over time.
Understanding both is essential to build a full picture of a client’s financial background. In some cases, such as transactions involving politically exposed persons (PEPs) or high-risk jurisdictions, SoW checks are mandatory under MLR. The SRA’s guidance also now clarifies that even when funds come from a UK bank, this does not automatically reduce risk as layered criminal funds may still appear legitimate.
The core problems exposed
The thematic review identifies several recurring challenges faced by firms of all sizes:
- Lack of clarity in guidance
Many firms remain unsure what constitutes a “necessary” SoF check under the regulations. The SRA and HM Treasury have acknowledged the need for more practical, illustrative guidance to support consistent interpretation. - Time and resource pressures
Smaller firms, in particular, struggle to complete thorough checks within limited budgets and timelines. Some were unaware they could transparently pass CDD costs to clients, as long as it’s disclosed in their terms and conditions. - Client reluctance and cultural barriers
Clients often resist providing detailed financial information, especially when it feels intrusive. The review notes this reluctance is compounded in cases involving long-standing relationships or culturally sensitive attitudes toward discussing wealth. - Fee earner hesitation
Many lawyers fear that probing too deeply might offend clients or strain trusted relationships but failing to do so risks far greater consequences.
Practical steps law firms should take now
The SRA’s findings highlight what firms should be doing differently. The regulator expects evidence-based, proportionate checks supported by a clear audit trail. Firms should be able to demonstrate:
- Where the money came from, not just that it exists.
- How the client acquired it, through what means or transaction.
- That the explanation and documentation match.
- That the approach taken was proportionate to the risk.
- That any anomalies were investigated and recorded.
The SRA has also published new tools and templates, including SoF/SoW FAQs, a standard form for clients, and a record of evidence template designed to make it easier for fee earners to document and justify their decisions.
The risk of getting it wrong
The implications of inadequate checks go far beyond regulatory censure. Under POCA, solicitors can commit offences if they knowingly or even suspect that they are helping to move or disguise criminal property.
Failing to identify the origins of funds can therefore expose both firms and individual practitioners to serious criminal penalties. Moreover, reputational damage from being associated with financial crime can be devastating, especially in high-profile transactions like conveyancing which is still the most common sector for suspicious activity reports (SARs) filed by the SRA.
Regulation in transition
This thematic review comes at a pivotal moment. HM Treasury’s 2025 consultation on the MLR 2017 proposes targeted reforms to simplify compliance and strengthen the UK’s AML regime. The SRA has signalled it will align its guidance with these updates, maintaining a risk-based, proportionate framework rather than prescriptive rules.
However, as one commentator observed, precision matters. The Law Society and the SRA will need to ensure that their respective guidance remains harmonised, defensible, and legally sound, avoiding the confusion that multiple competing interpretations once caused.
What this means for law firms
For law firms, this is more than a compliance exercise. It’s a business resilience issue. Firms that embed strong SoF and SoW procedures will:
- Protect themselves from criminal exploitation and regulatory action.
- Demonstrate professionalism and integrity to clients and regulators alike.
- Streamline file reviews and audits with better record-keeping.
- Enhance their culture of ethical risk management, which clients and insurers increasingly expect.
The SRA’s findings also offer an opportunity for firms to rethink their internal AML training. Fee earners should feel confident, not cautious, in asking difficult questions, supported by clear policies and leadership commitment.
The SRA’s thematic review is both a warning and a roadmap. It reveals persistent weaknesses, but also points toward a more practical and proportionate way forward.
By embracing the lessons in this review and taking advantage of the new resources provided, law firms can not only avoid regulatory pitfalls but also strengthen their credibility in an environment where transparency and trust have never mattered more.
In this volatile regulatory environment, the need for firms to adopt agile systems that can keep pace. This is why we developed Omnitrack, our workflow optimisation platform. It includes our AML Client Onboarding and Legal Compliance solutions, all customisable to client process. Learn more here.
