Six for ’26 – The Regulatory Horizon for Solicitors and Other Lawyers

2026 is set to be another seismic year for legal regulation. In this alert we identify six regulatory issues for lawyers and risk and compliance teams to be aware of in 2026.

1. FCA takeover of AML oversight function
 
On 21 October 2025 the government announced that the Financial Conduct Authority (“FCA”) will become the single professional services supervisor for anti-money laundering and counter-terrorism financing, stripping the SRA (along with various other regulators) of its current role.
 
The government is now consulting on what powers the FCA requires in order to be effective. The consultation closed on 24 December, following which the government will need to pass enabling legislation, as well as formulating a detailed transition and delivery plan.
 
As the FCA will need to develop sector specific expertise (which may or may not involve the recruitment of individuals currently working at the SRA) we still expect the SRA to retain its AML supervisory function throughout 2026 (expect to see this again in “seven for ‘27”). The SRA will be keen to demonstrate that it is “business as usual”, having announced at the COLP/COFA conference in Birmingham in October 2025 that its thematic review in 2026 will be on policies, controls and procedures (in essence, does what your policies say match what you actually do?).
 
We will however begin to see the direction of travel and how different FCA regulation could look.  The recent FCA consultation already concedes that there will be an element of dual regulation, as well as a further set of practising fees. Those familiar with FCA regulation point to its focus on data, systems and processes as well as the requirement to demonstrate and assess fitness and propriety to hold certain positions. The Law Society’s response to the consultation has identified a number of legitimate concerns about similar processes being applied to law firms, which are already subject to the SRA’s regulatory framework in a number of these areas (for example the SRA has a distinct character and suitability regime).
 
The Government’s decision was announced as part of a “blitz on business bureaucracy” and is intended to ensure a consistency in approach to AML across sectors and professions. However, whilst it is still too early to say definitively, it seems reasonable to assume that the administrative burden in relation to AML, which is already significant for law firms, is likely to increase once it is in the hands of the FCA.
 
Andrew Pavlovic has comments on the Law Society’s response to the Government consultation in this Global Legal Post article.
 
2. Dentons appeal
 
In March 2026 the Court of Appeal will hear Dentons UK’s appeal against the decision of Mrs Justice Lang [2025] EWHC 353 (Admin), who herself had allowed the SRA’s appeal against the decision of the SDT.
 
The SDT had previously found that Dentons’ conduct in failing to adequately establish the source of wealth of their client, a politically exposed person, was in breach of the money laundering regulations, but that the breach was not serious, culpable and reprehensible, and accordingly did not reach the threshold of professional misconduct required to engage the SRA Principles/Code of Conduct. On appeal, Mrs Justice Lang quashed the SDT’s decision, finding that, in relation to breaches of the money laundering regulations, it was not necessary for the SRA to demonstrate that the breach was serious, culpable and reprehensible, and such an assessment was only required where it was inherent in the rule in question.
 
The Court of Appeal will now need to decide whether the approach of the SDT or the High Court is to be preferred.
 
It is worth noting that the decision relates to the relevant Principles/Outcomes in the SRA Code of Conduct 2011, Principle 7 of which requires firms and individuals to comply with their legal and regulatory obligations (which includes the anti money laundering obligations). There are no equivalent provisions in the 2019 SRA Codes, however the outcome of the case is still important, as if the Court of Appeal finds that breaches of the money laundering regulations give rise to strict liability, this may embolden the SRA in future investigations and give them more discretion in deciding the cases which they should take forward.
 
The SRA’s own guidance on the money laundering regulations states that only serious breaches of the regulations need to be self-reported, and there is no obligation to report “one-off breaches of the regulations which are limited in scope and impact”[1]. This guidance does still enable firms/individuals to assess seriousness at the self-reporting stage, albeit it is not easily squared with the approach taken by Mrs Justice Lang, which may or may not be upheld on appeal.

3. Axiom Ince/SSB fallout  

This time last year, we were writing about the LSB’s enforcement action against the SRA for its failures in relation to Axiom Ince (see news alert here). In October 2025 the LSB took enforcement action against the SRA again, this time in relation to their failures to identify the regulatory risks arising from the SSB Group, a high-volume litigation firm which collapsed in January 2024, exposing a significant number of clients to adverse costs. The independent report commissioned by the LSB was arguably even more critical of the SRA, finding that they had received multiple reports from various sources as to the financial stability of the firm, but failed to connect the dots and considered reports in isolation.
 
In light of these high-profile failures, which raise significant question marks as to the SRA’s ability to adequately assess and identify risk, the SRA’s new Chair will have the immediate task of implementing the directions imposed by the Legal Services Board and attempting to restore the confidence of both the public and the profession. 
 
The Axiom/SSB Group failures both involved firms that expanded rapidly through taking on distressed firms and/or clients from distressed/collapsed firms. As a result, the SRA has been directed by the LSB to consider its approach to proposed mergers and acquisitions, with one possibility being that the SRA will have the power to approve or veto proposed transactions. There is a concern that this could introduce delay and uncertainty and be stifling to legal sector transactions activity where there are no regulatory risks or concerns, meaning a delicate balance will need to be struck. This will be an area of focus for law firms and PE businesses alike as transactions driven by PE investment look set to continue in 2026.
 
In its December 2025 consultation paper on client monies, the SRA has explained that it is producing an initial set of risk indicators and developing proposals for notification requirements to enable them spot relevant risks and take appropriate action where those risk factors are present. They aim to consult on the developed package of proposals and draft rules by the end of May 2026. The SRA have also indicated that, in order to monitor risks more effectively, they will require more data from firms working in particular high risk areas (conveyancing, immigration and high volume conveyancing work), as well as those with certain business models (accumulator firms and consultant led models).

4. Consumer protection review  

The SRA has just launched its second consumer protection review, which is open until 20 February 2026.The first review had consulted on a number of issues arising from the Axiom Ince affair, the main one being whether firms should continue to hold client money, given the consequences for the profession arising from dishonest misappropriations. Having received feedback from the consultation, the SRA has deferred that bigger issue, whilst continuing to make clear that it is still on their longer-term agenda.
 
In the meantime, the second consultation proposes a number of steps to strengthen SRA oversight and internal controls within firms, including (1) firms being required to file their accounts with the SRA on an annual basis as a matter of course, with a range of fixed financial penalties to be applied for non-compliance with the accounts rules and (2) that for firms meeting certain thresholds, any individual that can unilaterally determine or direct significant management decisions in a firm cannot be the COLP or the COFA of that firm.
 
The Axiom Ince affair identified the risks associated with concentrating owner, manager and compliance roles in one individual within an organisation. However, the majority of the firms that will be impacted by this proposed change will have been working within the current arrangements without issue, and may now be required to re-assign roles where it is not necessary. Those working in compliance roles have often gained significant experience over time and those skills cannot be easily transferred. In addition, the COFA role requires an understanding of financial documents/reconciliations, which can be unfamiliar to solicitors and require substantial training. Again, the SRA will need to strike a balance which addresses the regulatory risk but does not unnecessarily increase the burdens, particularly in smaller firms where there are likely to be only a limited number of individuals that are suitable to hold such important roles.

5. Mazur  

Our previous news alert (here) summarised the High Court’s decision in Mazur and the implications for firms conducting litigation. By way of reminder, the Court found that the Legal Services Act 2007 makes no provision for unauthorised people to conduct litigation under supervision. Rather, those people can only support and assist authorised individuals conducting litigation.
 
CILEX have been given permission to appeal the Judgment, with a hearing now listed on 24 February 2026. Whilst the appeal will most likely focus on statutory interpretation, it is undeniable that, on a practical level, fixed costs and other similar regimes require firms to push day to day management of matters down to the lowest possible level in order to ensure at least a level of profitability.
 
In the interim there will continue to be fallout, with firms potentially having to resource teams differently and adjust their fee structures, recognising that this could all be for nothing if the decision is overturned.  There are also likely to be a continuing flurry of costs disputes.
 
On the regulatory side, the SRA has recently stated that they will “treat sympathetically” firms self-reporting any working arrangements that were previously not compliant with the Judgment, providing this was based on a genuine misunderstanding of the position. Conversely, they state that they will use their appropriate investigative and enforcement powers against firms who have failed to address the implications of the decision and adjust their working practices accordingly.

6. Challenge to SRA right to inspect privileged documents  

The SRA confidently asserts in its guidance that it is entitled to review privileged documents between a solicitor and a client for the purposes of exercising their investigative powers. In practice, this is done by the SRA serving the solicitor/firm with a notice under section 44B of the Solicitors Act 1974 setting out the documents they require.
 
However, there is no express statutory override in the Solicitors Act 1974, and the “no infringement” principle, which the SRA had traditionally relied on, was disavowed by the Court in the Sports Direct [2] case. Furthermore, the privilege belongs to the client and cannot be unilaterally waived by the solicitor/firm. On the contrary, the Court has previously held that solicitors have a positive duty to assert their client’s privilege in circumstances where the client refuses to consent.
 
The SRA’s position has now been challenged by Carter Ruck and their client, Mohamed Amersi, who are seeking a declaration from the High Court that the SRA’s investigative powers do not extend to seeking/reviewing privileged documents and/or advice. Should the Court rule in Carter Ruck/Mr Amersi’s favour, this would be a significant defeat for the SRA, which would impact on their ability to investigate matters where the underlying client is not willing to waive privilege and the advice given may be key in determining whether the solicitor/client had acted in accordance with their wider duties to the Court and/or to uphold the rule of law.
 
If the decision was to go against the SRA, the Government would then need to consider whether to legislate to provide for the statutory override which is currently missing from the Solicitors Act.
 
A more detailed discussion of this issue can be found in this ReguLaw podcast.

If you have any questions arising from this alert, or if you would like to discuss any of the issues in more detail, please contact our Regulatory and Professional Discipline Partners, Andrew Pavlovic and Nick Leale.