Another week, another Solicitors Regulation Authority (SRA) enforcement notice and this one should make every law firm sit up straight. A Mayfair firm, Charles Douglas Solicitors, has been fined £24K for shortcomings in client due diligence relating to a foreign Politically Exposed Person (PEP). Over two and a half years, the firm acted for this client in 194 matters, most involving residential property or refinance work.

On paper, the headline sounds alarming. But examined closely, the details reveal something more troubling: Even firms conducting substantial checks are now finding themselves on the wrong side of enforcement action. And the implications for the wider profession are significant.

What happened?

The SRA’s review found that the firm had collected extensive information about the client’s wealth and sources of funds. There was no allegation of wrongdoing by the client. Most transactions didn’t even complete. Yet the regulator decided the firm had not done enough. Specifically, it could not adequately demonstrate the provenance of a small fraction of the funds used, and some onboarding questions regarding overseas business interests were deemed insufficient.

Financial statements provided by overseas accountants raised what the SRA described as concerns: high revenue, low expenditure and most profit paid out as dividends. The regulator concluded that this pattern should have triggered deeper enquiries. While enhanced due diligence had been applied, it was judged not fully compliant with the Money Laundering Regulations. 

The risk of harm was agreed to be low. The firm cooperated fully, accepted its shortcomings, and still, the fine was substantial.

A system out of balance

This case has struck a nerve across the profession because it highlights the growing gap between the risk-based approach firms are told to take and the zero-defect approach increasingly expected in enforcement.

As one industry commentator put it, “Since when did solicitors need to operate like forensic accountants?”

Firms are encouraged to exercise professional judgement. But the moment that judgement deviates from what the regulator considers “enough,” even on a marginal fraction of funds, the consequences are severe.

And most firms will settle rather than spend six figures defending an investigation into a five-figure penalty. The SRA knows this. And when “the process becomes the punishment,” the practical effect is a growing culture of defensive compliance.

What this means for firms

Expect the threshold for ‘adequate’ checks to keep rising

This case demonstrates that collecting large amounts of information is no longer sufficient. Firms must be able to evidence scrutiny, justify decisions, and show clear reasoning around any anomalies—even if the amounts involved are small.

Documentation is becoming as important as diligence

The SRA’s issue wasn’t simply what the firm did, but what it could prove it had done. Clear audit trails, decision logs and documented risk assessments are now indispensable.

Overseas source-of-wealth is a growing area of vulnerability

Statements from foreign accountants with unusual financial patterns will now be treated as red flags requiring deeper enquiry. Firms must train staff to identify and escalate these discrepancies.

The insurance consequences are real

Every enforcement headline becomes an actuarial input. Even low-harm, technical breaches can influence next year’s PII premiums, not just for the firm involved, but sector-wide. More fines mean more perceived risk, which means higher costs.

Defensive compliance is the new normal

Fear of enforcement, rather than actual money-laundering risk, may increasingly dictate behaviour. This leads to more friction for clients, slower onboarding, over-documentation and higher operational cost. The regulatory burden is shifting from “risk-based” to “risk-averse.”

Where do firms go from here?

Something has to give. Firms can’t scale due diligence infinitely, and regulators can’t continue ratcheting expectations without acknowledging the operational realities of practice.

But in the current climate, even technical or marginal gaps can lead to meaningful penalties.

Firms should take this opportunity to:

• Review PEP and high-risk onboarding processes

• Stress-test source-of-wealth documentation standards

• Audit overseas financial documents with extra care

• Enhance staff training on identifying anomalies

• Improve record-keeping around decision-making and escalation

The Charles Douglas decision is not an outlier. It is a signal. Compliance expectations are rising, scrutiny is intensifying, and the margin for error is shrinking.

This fine is not about one firm. It is a preview of the regulatory environment the entire sector is operating in. And unless compliance processes evolve and regulators reconsider what a genuinely risk-based approach should look like, the profession will continue to move toward an expensive, defensive, and increasingly unsustainable model of AML compliance.

The UK is overhauling its AML framework, with the Financial Conduct Authority (FCA) set to replace the Solicitors Regulation Authority (SRA) and others as the single AML supervisor. The change will unify oversight across law, accounting, and trust service firms, aiming for greater consistency and stronger enforcement. Download your guide to the changes in AML regulation here.