Is Your Law Firm Ready for an SRA Audit? Key Compliance Gaps Solicitors Should Check Now

For many firms, an SRA audit is not simply an administrative review. It can expose weaknesses in compliance systems, AML procedures, file management, client due diligence, supervision, governance and risk controls that may already exist within the practice.

The Solicitors Regulation Authority continues to publish warning notices, regulatory updates and enforcement outcomes which make one thing clear: firms are expected to maintain robust compliance systems at all times, not only when an audit or investigation begins. Recent updates published by the SRA reinforce the regulator’s ongoing focus on anti-money laundering controls, client due diligence, sanctions compliance and firm-wide risk management. SRA News and Updates

Alongside SRA activity, the Legal Sector Affinity Group (LSAG) guidance remains a critical resource for firms assessing their AML and compliance obligations. The latest guidance continues to stress the importance of documented risk assessments, effective monitoring and evidence-based compliance processes. LSAG Anti-Money Laundering Guidance

For law firms, the message is straightforward. Compliance cannot sit in the background until an issue arises. Firms should regularly assess whether they are genuinely prepared for an SRA audit and whether their systems would withstand regulatory scrutiny today.

Why SRA Audit Readiness Matters More Than Ever

Many firms assume they will receive warning before regulatory scrutiny begins. In reality, compliance concerns can arise from multiple sources, including:

• Client complaints
• AML concerns
• Transaction monitoring
• Reports from staff
• Thematic reviews
• Random inspections
• Financial irregularities
• Cybersecurity incidents
• File review concerns
• Breaches reported by COLPs or COFAs

An SRA audit can place significant pressure on a firm if records are incomplete, procedures are inconsistent or compliance systems have not been actively maintained.

Regulatory scrutiny can also create wider commercial risks, including:

• Reputational damage
• Loss of client confidence
• Increased professional indemnity concerns
• Internal disruption
• Delays to transactions
• Increased insurer scrutiny
• Staff morale issues
• Follow-up investigations

This is why proactive SRA compliance reviews are increasingly important.

---

What Does an SRA Audit Typically Examine?

An SRA audit may focus on multiple operational and compliance areas depending on the regulator’s concerns and the nature of the firm.

Common review areas include:

• Anti-money laundering controls
• Firm-wide risk assessments
• Client due diligence
• Source of funds checks
• Source of wealth procedures
• Policies and procedures
• File management
• Residual balances
• Client account handling
• Sanctions compliance
• Staff training records
• Complaints handling
• Supervision arrangements
• Cybersecurity controls
• Governance and reporting structures
• Breach reporting procedures
• Risk registers

The regulator will often assess not only whether policies exist, but whether they are actively followed in practice.

This is where many firms encounter difficulties during an SRA audit. Policies may look acceptable on paper, but file reviews sometimes reveal inconsistent implementation.

---

The Most Common SRA Compliance Gaps Law Firms Face

Many firms already have compliance documentation in place. However, the issue is often consistency, monitoring and evidence.

Below are some of the most common weaknesses identified in law firm compliance reviews.

1. Outdated AML Policies

AML policies should not remain static for years without review.

The legal and regulatory environment changes regularly. Firms should ensure policies reflect:

• Current regulations
• Sanctions obligations
• Updated LSAG guidance
• Remote onboarding risks
• Modern payment risks
• Emerging fraud typologies
• Internal escalation procedures

An outdated AML manual can create immediate concerns during an SRA audit.

2. Weak Firm-Wide Risk Assessments

The firm-wide risk assessment is one of the most important AML documents.

However, many firms treat it as a template exercise rather than a live operational assessment.

A proper risk assessment should reflect:

• The firm’s client base
• Services offered
• Geographic exposure
• Delivery channels
• Transaction types
• Politically exposed person exposure
• Sanctions risk
• Sector-specific vulnerabilities

If the risk assessment does not match the actual work the firm undertakes, this can become a significant SRA compliance concern.

3. Poor Source of Funds Evidence

Source of funds checks remain an area of heavy scrutiny.

Many firms collect basic bank statements but fail to properly evidence the rationale behind their conclusions.

During an SRA audit, firms may be expected to demonstrate:

• What information was reviewed
• Why it was considered sufficient
• Whether inconsistencies were challenged
• Whether enhanced due diligence was necessary
• How decisions were documented

The absence of clear file notes can create problems even where checks were carried out informally.

4. Inconsistent File Reviews

File reviews are often completed inconsistently or retrospectively.

Firms should ensure reviews are:

• Regular
• Risk-based
• Properly documented
• Escalated where necessary
• Linked to training and supervision outcomes

A compliance system is only effective if monitoring actually identifies and addresses issues.

5. Weak Training Records

Training records are frequently overlooked.

The SRA may expect firms to evidence AML and compliance training across staff and fee earners.

Training should generally reflect:

• AML obligations
• Sanctions compliance
• Data protection
• Cybersecurity awareness
• Risk escalation
• Regulatory updates
• Firm-specific procedures

A firm may claim staff are trained, but without evidence this can become difficult to demonstrate during an SRA audit.

6. Lack of Compliance Monitoring

Some firms appoint a COLP or MLRO but fail to provide ongoing compliance monitoring support.

Compliance roles should not operate in isolation.

Effective law firm compliance usually requires:

• Regular meetings
• Risk reviews
• Internal reporting
• Audit trails
• Action logs
• Breach monitoring
• Management oversight

Firms should be able to show active compliance management rather than reactive problem-solving.

7. Residual Balance Problems

Residual balances continue to attract regulatory attention.

Firms should ensure there are clear procedures for:

• Identifying balances
• Tracing clients
• Returning funds promptly
• Escalating aged balances
• Obtaining authority where required
• Maintaining accurate records

Weak residual balance management can quickly become a wider accounts-rule concern during an SRA audit.

8. Sanctions Compliance Weaknesses

Sanctions obligations have become increasingly important.

Firms should ensure they have procedures for:

• Screening clients
• Screening beneficial owners
• Monitoring sanctions lists
• Escalating concerns
• Documenting outcomes

Many firms updated sanctions policies following geopolitical developments, but some have not fully embedded those procedures operationally.

---

Why File Evidence Matters During an SRA Audit

One of the most important points for firms to understand is that regulators focus heavily on evidence.

A firm may verbally explain that it follows proper procedures, but if the file does not demonstrate compliance, the regulator may still identify concerns.

This applies to:

• Source of funds
• Risk assessments
• CDD checks
• File reviews
• Escalations
• Training
• Client communications
• Sanctions checks
• Supervision

When preparing for an SRA audit, firms should think carefully about whether the documentary evidence supports the compliance narrative.

---

Are Your COLP and MLRO Properly Supported?

Compliance officers often carry significant responsibility.

However, some firms place excessive pressure on COLPs, COFAs or MLROs without providing adequate operational support.

The regulator may expect compliance officers to demonstrate:

• Oversight
• Monitoring
• Escalation processes
• Record keeping
• Risk management
• Internal reporting
• Policy implementation

A compliance structure should support the individual in the role rather than relying entirely on one person.

This is where structured risk management frameworks become valuable for growing firms.

---

Cybersecurity and Regulatory Risk

Cybersecurity is increasingly connected to regulatory compliance.

Law firms hold sensitive client information, financial records and transaction data. Weak cybersecurity controls can create serious operational and regulatory consequences.

An SRA audit may examine areas such as:

• Password controls
• Multi-factor authentication
• Staff awareness
• Email security
• Access management
• Device protection
• Incident reporting
• Data handling procedures

Cyber incidents can also trigger wider reporting obligations depending on the circumstances.

---

Why Proactive SRA Compliance Reviews Matter

Some firms only review compliance systems after receiving regulatory contact. By that stage, weaknesses may already exist within files and operational processes.

A proactive review allows firms to:

• Identify gaps early
• Improve documentation
• Update policies
• Train staff
• Strengthen supervision
• Reduce regulatory exposure
• Improve audit readiness
• Demonstrate active governance

This can significantly reduce pressure if an SRA audit or investigation later arises.

---

Signs Your Firm May Need Immediate Compliance Review

Some warning signs suggest firms should review compliance urgently.

These include:

• Inconsistent AML procedures
• Large volumes of historic files
• Rapid growth without compliance scaling
• Lack of recent training
• Poor file review evidence
• Unclear sanctions processes
• No recent policy updates
• Weak supervision records
• Residual balance issues
• Previous regulatory concerns
• Lack of documented risk assessments

Firms do not need to wait for an SRA investigation before addressing these issues.

---

The Commercial Benefits of Strong Compliance

Compliance is often viewed as a regulatory burden. However, strong compliance systems can also create commercial advantages.

Well-managed firms may benefit from:

• Better operational consistency
• Reduced negligence risk
• Improved insurer confidence
• Stronger client trust
• Faster onboarding
• Reduced internal disputes
• Better risk visibility
• Easier staff training
• Improved governance

Strong law firm compliance can support long-term stability and growth.

---

---

Final Thoughts

An SRA audit is rarely only about paperwork. It is about whether the firm can demonstrate genuine operational compliance across AML controls, governance, supervision, file management and risk processes.

The SRA’s continued regulatory focus, together with updated LSAG expectations, means firms should not assume historic systems remain sufficient.

Law firms should regularly review whether their policies, files and operational procedures genuinely reflect current regulatory expectations.

If your firm wants support with SRA compliance, AML procedures, regulatory investigations or audit readiness, MAR Legal can assist with practical, commercially focused compliance support.

Contact MAR Legal today to discuss your firm’s audit readiness and compliance framework.

FAQs – Trademark Registration UK