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Small Law Firms Face Rising SRA Fines for AML Failures

The Solicitors Regulation Authority (SRA) has issued another round of fines to law firms failing to demonstrate compliance with anti-money laundering (AML) regulations. This latest action highlights the increasing scrutiny on firms, particularly smaller practices, as regulators intensify their focus on AML compliance.

The largest penalty in this round of fines was imposed on Duffield Harrison LLP, a Hertfordshire-based firm, which was ordered to pay £25,000—the maximum fine the SRA can issue without referral to the Solicitors Disciplinary Tribunal (SDT). The SRA found that the firm had failed to conduct proper client risk assessments on six reviewed cases and did not maintain adequate records demonstrating compliance measures.

While the firm contended that risk assessments had been performed since at least 2012, it acknowledged that documentation was missing from the six files reviewed. In response to the findings, Duffield Harrison LLP implemented a fully compliant risk assessment policy and communicated it across its fee earners.

Recognizing the firm’s full cooperation, the SRA initially calculated a penalty of £26,359, later reducing it to £25,000 to prevent a disproportionate escalation of the matter to the SDT. The regulator stated, “A referral to the Solicitors Disciplinary Tribunal at this late stage, after full and frank admissions have been made, would only increase the time, cost, and delay, and it would not serve the public interest to do so.”

Other Firms Penalized for AML Deficiencies

Alongside Duffield Harrison LLP, three additional firms received financial penalties for failing to meet AML regulatory requirements:

The Commercial Law Practice (Dorchester) – £11,579
Burch Phillips & Co (West London) – £3,370
Steinbergs Solicitors (Liverpool) – £3,778

In all cases, the SRA found no evidence of consumer harm or money laundering. The firms demonstrated full cooperation and a low risk of recurrence.

Smaller Law Firms Under Increasing Scrutiny

Recent data highlights that small firms, particularly those with 20 or fewer fee earners, are facing heightened regulatory scrutiny. According to information obtained by client due diligence platform Thirdfort, small firms accounted for:

55% of proactive SRA inspections
74% of desk reviews
86% of enforcement actions during 2023/24

Harriet Holmes, Senior Manager at Thirdfort, commented, “Over the past year, small firms have been more likely to come under SRA scrutiny regarding their AML compliance. This may be due to limited in-house compliance resources, as lawyers in these firms often juggle fee-earning and regulatory responsibilities. It may also relate to the risk profile of their practice areas, such as conveyancing, which the SRA has identified as a higher-risk sector.”

Regulatory Perspective on AML Supervision

The SRA has reaffirmed its commitment to a risk-based approach in AML enforcement. While smaller firms often lack specialized compliance teams, the regulator insists that its inspections cover firms across all risk levels.

“We visit more firms rated as high risk, but we also visit low and medium-risk firms. Just because we are visiting does not necessarily mean we consider your firm to be at high risk for money laundering,” the SRA clarified.

The regulator continues to encourage law firms of all sizes to strengthen their AML controls, maintain robust risk assessment records, and ensure compliance measures are consistently applied across all client matters.

Conclusion

The latest round of fines reinforces the importance of AML compliance in the legal sector. Law firms, particularly smaller ones, must proactively ensure their policies, procedures, and documentation meet regulatory expectations. With the SRA increasing its focus on high-risk areas like conveyancing and smaller practices, firms that fail to demonstrate compliance may face significant financial penalties and reputational damage.