SMEs across the UK are under pressure. The cost of employing a team is up, while fees are being squeezed as clients themselves battle against dampened consumer confidence and a struggling economy. Small and medium sized accountancy practices are no exception states Rupert Lee-Browne, CEO and founder, Caxton.

Now seems like a difficult time to increase the regulatory burden for SME firms therefore, yet that’s exactly what will be on the cards for 2026.  

Currently, accountancy firms report on AML to the Institute of Chartered Accountants in England and Wales (ICAEW). Proposed changes to the UK’s Anti-Money Laundering (AML) framework however mean that the professions may soon have to report on AML to the UK’s financial services regulator, the Financial Conduct Authority (FCA).

This doesn’t sound like a huge change but for SME firms which may not have large compliance teams, it could prove costly.

Decoding the Detail

A particular challenge for SME firms will be dealing with two regulators simultaneously, the ICAEW and the FCA. This means reporting to different timelines, on different metrics and with different requirements. It also means two sets of fees. 

It might also lead to complex regulatory overlap that could drown a firm in administration, legal fees and fines. If an AML breach covered by the FCA for example, also constituted an integrity breach covered by the ICAEW, a complex situation of dual enforcement would ensue.

The risk for the sector is that a weak economy, combined with a growing compliance burden, becomes a perfect storm for many SME firms. With firms under pressure and private equity already targeting the UK’s accountancy sector, many of them could be left with a choice between going under or being bought out by larger rivals.  

History Repeating

We have seen similar market consolidation before, in the US.

Following a number of headline grabbing corporate accounting scandals in the early 2000s, the US Government, in 2002, passed the Sarbanes-Oxley Act. To counter corporate malpractice, Sarbanes-Oxley significantly increased disclosure and oversight obligations for US firms.

While everybody would welcome better safeguards against wrongdoing, the act also had some unintended consequences. The regulatory burden was too much for many SME firms, and led to significant consolidation in the market, cementing the dominance of the ‘Big Four’.

So, could this be the UK’s Sarbanes-Oxley moment? If it is, the ultimate upshot would be to reduce competition in the sector and reduce consumer choice.

Firms with an eye on the future should take action now to mitigate the risk of a growing regulatory burden and positioning themselves for heightened scrutiny from the FCA. The question is, where to begin? 

One Step Ahead

While details on FCA oversight of AML are still being ironed out, firms can begin to adapt procedures and reporting now so that they’re one step ahead of the changes.

Reviewing and documenting now and preparing thorough risk assessments will be invaluable in managing the shifting regulatory landscape. When it comes to due diligence, firms should start acting as if they’re already under the auspices of the FCA. This means going beyond document collection when onboarding and reviewing clients and detailing fund sources and other key financial information.

Rethinking compliance roles and procedures within firms is also a good way to stay ahead of the curve. Given the stringent approach to AML taken by the FCA and the weighty fines and actions that could result from breaches, embedding compliance within senior teams and core processes will be essential.

Firms should also consider exploring Third-Party Managed Accounts (TPMAs) as an alternative to client accounts. This anticipates any potential need to keep client funds separate, reduces the risk of a breach and reduces the administrative burden of managing fund accounts.

Conclusion

Like all businesses, many accountancy firms found 2025 challenging and anticipate further challenges over the year ahead. The rollout of a more complex and onerous regulatory regime might feel badly timed.

However, firms that institute practices and policies now, and embed compliance and risk management within senior teams, could turn this challenge into opportunity. Those firms that prepare now will be well placed to continue offering a seamless and compliant service, while those less prepared may struggle.

While there’s no shortcut to dealing with a potentially growing compliance burden in 2026, there are steps firms can take to get ahead of the changes to reduce their potential impact later this year. So, why wait?