Regulatory Confusion: An Unintended Gift to Financial Crime?

Regulatory reform in the anti-money laundering (AML) space is typically justified by the need for stronger oversight, greater consistency and more effective disruption of criminal activity. However, where reform introduces overlapping supervisory regimes without clear lines of responsibility, it risks weakening the very system it is intended to strengthen. The government’s proposal for the Financial Conduct Authority (FCA) to assume responsibility for AML supervision of law firms, while the Solicitors Regulation Authority (SRA) retains jurisdiction over professional conduct, is a case in point.

The Solicitors Disciplinary Tribunal (SDT) has highlighted the danger of “double jeopardy”, where the same underlying conduct may be investigated by two regulators operating in parallel. Beyond the obvious concerns about fairness to firms and individuals, this raises a more fundamental issue: regulatory fragmentation creates delay, uncertainty and inconsistency. Where fact-finding is duplicated or poorly coordinated, outcomes may diverge, enforcement action may be slowed, and regulatory credibility is undermined.

From a financial crime perspective, this matters because organised criminals are highly sensitive to weaknesses in control environments. Regulatory confusion is not a neutral condition; it is an opportunity. Where firms are unsure which regulator’s guidance takes precedence, when to report issues, or how information will be shared between authorities, compliance becomes reactive rather than risk-led. That, in turn, affects the quality and timeliness of suspicious activity reporting and reduces the effectiveness of intelligence-led enforcement.

There is also a practical and uneven impact across the legal sector. Larger firms may be able to absorb the cost of dual registration, overlapping audits and competing regulatory expectations. Smaller practices, already under pressure from rising compliance burdens, may struggle. Criminal networks are well aware of these disparities and may deliberately target firms perceived as less well-resourced or less confident in navigating complex regulatory frameworks. In this way, dual regulation risks distorting the risk landscape and concentrating vulnerability at the margins of the profession.

The SDT’s response to the Treasury consultation is therefore significant. Its call for clear statutory referral mechanisms, mandatory and prompt information-sharing, and coordination of investigative activity goes to the heart of effective AML supervision. Without these safeguards, there is a real risk of duplicated investigations, inconsistent factual findings and delayed disciplinary proceedings, all of which benefit those seeking to evade scrutiny rather than those trying to uphold professional standards.

None of this is to suggest that a single AML supervisor model is inherently flawed. In principle, consolidation could bring greater consistency and specialist expertise. However, for it to work in practice, the boundaries between AML supervision and professional conduct regulation must be clearly defined, and the interface between regulators tightly managed. Otherwise, firms will be left navigating overlapping obligations while criminals exploit the resulting uncertainty.

If the objective is to strengthen the UK’s defences against financial crime, regulatory reform must prioritise clarity, coordination and accountability. Adding complexity to an already demanding compliance environment risks achieving the opposite. In the fight against money laundering, confusion is not just a burden on firms, it is an open door for those determined to abuse the system.