As 2025 draws to a close, it is clear this has been, without question, one of the most demanding years for law firm compliance in recent memory. The legal sector has faced a relentless stream of regulatory updates, enforcement actions, and policy changes that have left many firms struggling to keep pace.

From the Mazur ruling that upended litigation supervision structures, to SRA’s mounting enforcement actions, and the news that the Financial Conduct Authority (FCA) is set to assume responsibility for AML supervision, the industry has been left reeling.

Looking ahead to 2026, the challenges are not going to get any easier. More likely, they will intensify. With the FCA taking over AML supervision and the Solicitor Regulation Authority (SRA) indicating it will be refocussing on Codes of Conduct and supervisory oversight, law firms are about to enter uncharted territory. Dual regulation is coming, whether firms and legal professionals are ready for it or not.

If your firm has spent the last year being reactive to the regulatory changes, or questioning whether your approach is fit for purpose, now is the time to take stock and plan for a stronger and a more regulatory robust start to the new year.  

With the SRA advising the intend to start looking closer at firm’s approach to regulation generally and how they comply with the Standard and Regulations it is essential for firms to ensure ALL their procedural documents are up to date and compliant.

How Was Regulatory Compliance Affected in 2025?

The past twelve months have delivered significant developments that have reshaped compliance obligations across the legal sector:

• Rising SRA Enforcement Actions – The SRA’s 2024-25 enforcement data revealed that nearly a third of inspected firms were found non-compliant with AML regulations, with fines totalling almost £1.5 million. Read our analysis here: ‘The SRA’s 2024-25 Enforcement Data: What It Means If Your Law Firm is Facing an Investigation‘.
• Source of Funds Compliance Failures – The SRA’s thematic review highlighted persistent failings in source of funds and source of wealth checks, with 11% of files lacking proper checks and 18% showing inadequate scrutiny. Read more: ‘SRA Publishes Thematic Review of Source of Funds and Wealth Compliance‘.
• Mazur Litigation Ruling – The Mazur & Stuart v. Charles Russell Speechlys LLP case sent major concerns throughout the profession, requiring firms to urgently review their litigation supervision structures. Our guidance: ‘Mazur Update: Should Law Firms Self-Report to the SRA?‘.
• FSCS Compensation Limit Increase – From 1 December 2025, the FSCS limit increased to £120,000, requiring firms to update their Terms of Business. Details here: ‘It’s time to review your Terms of Business as the FSCS compensation limit increases‘.
• FCA AML Supervision Transition – The government confirmed that AML supervision will transfer to the FCA, fundamentally changing the supervisory landscape for law firms. Our preparation guide: ‘Preparing Your Law Firm for the FCA’s AML Supervision‘.

While these represent some of the key changes in 2025, these developments are not isolated incidents. They represent a small percentage of the sustained period of regulatory scrutiny and a shift in how non-compliant firms are treated. Unfortunately, most firms have not had the internal resources to handle it properly.

2026 – Dual Regulation Is Coming

As we enter 2026, law firms are set to face a new regulatory environment with a shift to dual regulation. It means that solicitors regulated by the SRA in the UK will be answering to two regulators with different priorities, different approaches, and different expectations:

• The FCA for AML matters – The FCA’s data-driven, risk-based approach demands demonstrable outcomes, not just documented policies. Firms that have relied on tick-box compliance will face significant scrutiny.
• The SRA for conduct and supervision – With AML responsibilities transferred, the SRA has signalled its intention to focus more heavily on codes of conduct, professional standards, and supervisory oversight of legal practice. It is assumed that this will cause a different level of scrutiny.

Dealing with dual regulation creates new challenges:

• Different Expectations – The FCA and SRA have distinct supervisory styles. What satisfies one regulator may not satisfy the other.
• Increased Reporting Obligations – Firms will need to maintain separate reporting relationships and respond to different information requests.
• Resource Pressure – Compliance teams already stretched by existing obligations will face additional demands without corresponding increases in capacity.
• Coordination Challenges – Ensuring your compliance architecture serves both regulatory relationships efficiently without creating conflicts or gaps requires careful planning.

Why Outsourcing Makes Sense in 2026

Outsourced compliance offers several advantages as firms navigate dual regulation:

Cost-Effectiveness – Building an in-house compliance team with expertise across AML, FCA supervision, SRA requirements, GDPR, and broader risk management would cost significantly more than outsourced solutions. At the Regulation and Compliance Office (RACO), our services start from as little as £333.33 per month, providing access to specialist compliance managers and comprehensive support.

Expertise on Demand – Our compliance teams work across multiple regulators, including those already supervised by the FCA. We understand what both supervisors expect and how to structure compliance frameworks that satisfy both relationships simultaneously.

Scalable Solutions – Whether you are a sole practitioner or a large partnership, we tailor our support to your firm’s size, practice areas, and risk profile. Our solutions grow with your firm without the overhead of expanding internal teams.

Focus on Legal Practice – Outsourcing compliance allows your fee earners to focus on what they do best, providing legal services to clients. We handle the regulatory burden, from client due diligence to risk assessments, policy development to training delivery.

Continuous Monitoring – Rather than periodic reviews, our ongoing support includes regular monitoring, updates on regulatory changes, and proactive adjustments to your compliance framework as requirements evolve.

RACO’s Compliance Services for 2026

As you plan for the new year, consider which of our services could strengthen your firm’s compliance position:

• Regulation & Compliance Service – Our core service provides comprehensive risk management, AML compliance, and regulatory oversight tailored to your firm. This includes firm-wide risk assessments, policies, controls and procedures, and ongoing compliance monitoring.
• Regulation & Compliance Outsource Guidance and Support Service – Our compliance managers take on the day-to-day guidance and support expected from COLPs, COFAs, MLROs, and MLCOs, relieving your compliance officers of the burden while ensuring staff have access to expert advice when needed.
• Due Diligence & Risk Assessment Service – We handle client due diligence, enhanced due diligence, and client and matter risk assessments, allowing your fee earners to focus on legal work while we ensure compliance with MLR 2017 requirements.
• MLR 2017 Regulation 21 Independent Audit – As an independent body, RACO provides truly independent audits that satisfy Regulation 21 requirements and identify areas for improvement before regulators find them.
• Regulatory Defence Services – If you’re facing an SRA enquiry, investigation, or SDT proceedings, our defence specialists provide expert support throughout the process. Services include self-reporting, SRA enquiries and investigations, regulatory settlement agreements, and SDT support.
• Training Courses – We deliver AML training for all staff to meet annual training obligations, plus one-to-one training for MLROs and MLCOs on their specific responsibilities.

Our services are designed to integrate seamlessly, whether you need comprehensive support across all compliance areas or targeted assistance with specific requirements.

RACO has the expertise, experience, and solutions to help your firm navigate dual regulation confidently. Our clients enter the new year knowing their compliance position is strong, their frameworks are fit for purpose, and they have expert support on hand when needed.

Contact us Early to Prepare for 2026

If you have spent 2025 uncertain about your compliance position, worried about regulatory changes, or simply overwhelmed by the demands placed on your firm, 2026 offers a fresh start.

Contact RACO to discuss how our outsourced compliance solutions can provide the expertise and support your firm needs. Our initial consultations are free and without obligation. We can assess your current position, identify areas for improvement, and explain how our services can be tailored to your firm’s specific requirements and budget.

Contact Us Today:

Telephone: 0203 985 8550

Email: info@regulationandcomplianceoffice.co.uk

Online Enquiry: make an online enquiry