The Sectoral Guidance regarding the implementation of
The Money Laundering Regulations has been amended on 23rd April 2025
Read this post for Key Takeaways
Under construction
What is LSAG?
The Legal Sector Affinity Group (LSAG) provides vital sectoral guidance concerning the implementation of the Money Laundering Regulations. For regulated firms, this document is important as it outlines the specific steps for compliance. Chapter three provide details of the requirements for a robust Anti-Money Laundering Programme.
The LSAG Guidance is updated periodically.
Bodies that Form LSAG
- The Law Society of England and Wales
- Bar Standards Board
- Chartered Institute of Legal Executives
- Council for Licensed Conveyancers
- Faculty of Advocates
- Faculty Office of the Archbishop of Canterbury
- General Council of the Bar
- General Council of the Bar of Northern Ireland
- Law Society of Northern Ireland
- Law Society of Scotland
- Society of Scrivener Notaries
- Solicitors Regulation Authority
The Document
Though colloquially called LSAG, the document is actually titled, 'Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector 2025.'
The number of pages has increased to 228 pages
Terminology Used:
The terms used:
Must – a requirement in legislation or a requirement of a regulation or other mandatory provision. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or regulations.
Should – good practice for most situations. These may not be the only means of complying with the requirements and there may be situations where the suggested route is not the best option.
If you do not follow the suggested route, you should be able to justify to supervisors why your alternative approach is appropriate, either for your practice, or in the particular instance.
May – an option for meeting your obligations or running your practice. Other options may be available and which option you choose is determined by the nature of the individual practice, client or matter. You may be required to justify why this was an appropriate option to your supervisor.
The Key Changes in LSAG 25
The Key April 2025 amendments include:
- The applicability of the Economic Crime Levy for firms with an annual turnover of more than £10.2 million
- Guidance on the receipt of Third Party Source of Funds
- A new high-risk third country definition
- The requirement for Overseas Entities wishing to buy, sell or transfer property or land in the UK to register with Companies House.
Schedule of Amendments
A Schedule of Amendments is set out in the last section of the LSAG 25 pages 221-228.
The Law Society of England & Wales provided a note.
The writer has been through the LSAG 23 the LSAG 25 and has noted the following changes:
Same text
New Text
Removed Text
| Page | Chapter | LSAG 25 | Commentary |
| Cover | |||
| 1 | 2023 2025 Published 23 April 2025 Version 1.1 |
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| Contents | |||
| 2 | Contents | Contents |
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| 2 | 4.7 | 4.7 Information your supervisor of MLRO and MLCO Appointments and registering for the Economic Crime Levy |
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| 2 | 5.1.1 | 5.1.1 Supply chain risk |
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| 5 | 6.14.11.4 | 6.14.11.4 The Register of Overseas Entities |
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| 11 | 16.4.4 | 16.4.4 De minimis exemption |
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| 11 | 16.4.4 | The Home Secretary may also make regulations excluding certain transactions or sectors from these provisions |
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| 11 | 16.4.5 | 16.4.5 Mixed-property transactions |
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| 13 | Schedule of amendments | Schedule of amendments |
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| Body of Document | |||
| 16 | 2 Background | and Northern Ireland |
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| 22 | 4.2.2 Who might be a BOOM? | Beneficial Owners: partners who exercise significant control, owners (of a share of 25%or more than 25%), those with significant control of the entity (through ownership voting rights or otherwise). |
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| 27 | 4.7 Information your Supervisor of MLRO and MLCO Appointments and registering for the Economic Crime Levy | 4.7 Informing your Supervisor of MLRO and MLCO Appointments and registering for the Economic Crime Levy You must also register to pay the Economic Crime (Anti-Money Laundering) Levy (ECL) if your annual turnover exceeds £10.2 million pounds. The ECL is payable to HMRC and falls due each year your turnover exceeds the threshold amount. You must register and pay online. If you are dual-regulated by the FCA and a professional body supervisor, you must register using your FCA credentials. Further guidance, and a link to register, can be found here. |
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| 30 | 5 AML Risk Assessment | 10 11 12 13 |
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| 31 | 5.1.1 Supply chain risk | 5.1.1 Supply chain risk A supply chain refers to the end-to-end activities/actions involved in the provision of a service/product to the end customer or beneficiary. A simple supply chain could involve only a few individuals / companies while a more complex supply chain could involve multiple service providers. Understanding the purpose of the service you are providing and who is ultimately benefiting from it is important in being able to identify and manage any supply chain risks. This could involve making preliminary enquiries of your client to help you understand the purpose of the whole instruction and how your instructions fit into the overall supply chain. If necessary, you should also look beyond your own instruction to understand the totality of the transaction and identify any risks. This may include taking steps to understand the role of other professionals in the supply chain, e.g. accountants or company formation agents, and ensuring that these services fit with your understanding. |
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| 41, 42 | 5.6.2.1 Higher Risk Jurisdictions65 | HRTCS are listed at Schedule 3ZA of the Regulations. This list will change from time to time, ensure you are using the most up to date version. R33(3)(a) defines high-risk third countries (HRTCs) as those which appear on the following lists maintained by the Financial Action Task Force (FATF): • Jurisdictions under Increased Monitoring • High-Risk Jurisdictions subject to a Call for Action. These lists are set out here. You will need to make sure that you stay up to date with these lists. Any amendments will be made in February, June or October each year at the conclusion of a FATF plenary session. You can check and diarise the exact dates on FATF’s events calendar. LSAG members may also alert their regulated populations to changes. |
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| 57 | 6 Client Due Diligence Relevant Compliance Principles | 15 16 17 18 19 20 21 22 23 24 25 26 27 28 |
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| 65 | 6.14.1 Independent sources | The Economic Crime and Corporate Transparency Act 2023 (ECCTA) brought in a number of changes to the way that companies are registered and what information must be declared on an ongoing basis. These increase the volume and detail required on registration and in annual returns. While this information will be very useful in assessing risk and completing due diligence, R28(9) is not affected. |
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| 67 | 6.14.4 Natural Persons | To do this you should obtain either: documents that verify name, address and date of birth for example: • one government document which verifies either name and, address or name and date of birth; or • a government document which verifies the client's full name and another supporting documents which verifies their name and either their address and or date of birth. |
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| 70 | 6.14.10 Non-natural persons | R28(3A) states that where the customer is a legal person, trust, company, foundation or similar legal arrangement the relevant person must (having identify ied and verified the customer and in line with R28(2)) take reasonable measures to understand the ownership and control structure of that legal person, trust, company, foundation or similar legal arrangement. This requirement means tracing ownership back to any ultimate beneficial ownership of the entity by a natural person(s). You must then take reasonable measures to verify the identity of is a wider concept than simply identifying the beneficial owners. “Reasonable measures” means taking steps that are risk-based, proportionate and effective in mitigationg of the identified money laundering and terrorism financing risks inherent in the client or matter being undertaken. When considering this test of reasonableness, you should consider whether the information is likely to assist in addressing the money laundering risks and that you are comfortable that you would be able to demonstrate and evidence the extent to which you have sought such information and verification, to your supervisor upon request. It should not be misinterpreted as an allowance to not fulfil your duty to understand the full overall ownership and control structure of the client. You should also bear in mind that under regulation 33(6)(a)(vi) corporate structures which are unusual or excessively complex given the nature of the company's business, are noted as a specific risk factor. This may in turn require enhanced due diligence which could include, among other things, seeking additional independent, reliable sources to verify information provided to you, pursuant to regulation 33(5)(a). Regulations 28(3) and (4) set out that you must obtain and verify the client’s registered details and, subject to Regulation 28(5), identify the beneficial owner (where there is one). You must also (subject to Regulation 28(5)) take reasonable measures to: • determine and verify the law to which the body corporate is subject, its constitution and the full names of its board of directors or equivalent, and the senior persons responsible for the operations of the body corporate; and • verify the identity of the any beneficial owner so that you are satisfied that you know who the beneficial owner is. Again, subject to Regulation 28(5), you must also take reasonable measures to understand the ownership and control structure of the client entity (as per R28(3A) noted above) and of the beneficial owner if it is a non-natural person. This does not simply mean looking at percentages of ownership but also identifying individuals with control and directing power, as outlined in regulations 5 and 6. You should document your overarching understanding of the individual’s background, circumstances and nature of the transaction. Under regulation 28(18)(a), “verify” means confirmation based on documents or information obtained from a reliable, independent source.Regulation 28(5) sets out the measures that do not apply where the client is a company listed on a regulated market. Under regulation 28(18)(b), documents issued by an official body are considered independent, even if provided or made available by the client or on their behalf. This might be significant, for example, where a register was only accessible to the client. Where applicable having regard to the circumstances, you should verify the identity of the beneficial owner(s) to the same equivalent same standards as that applied to clients who are natural persons, as described in 6.14 and/or 614.4. In other, lower risk situation and in limited circumstances (such as when the relevant person already knows and has previously verified the identity of the beneficial owner) taking reasonable measure to verify the beneficial owner may mean, for example taking verification information from non-independent sources (e.g. non certified documents or information from reputable websites). To evidence why identification verification of beneficial owners through personal identity documents is not undertaken, it is important to document your overarching understanding of the individual’s background, circumstances and nature of the transaction. It is important to note that you are seeking to verify the beneficial owner’s identity, not simply that the identity in question is a beneficial owner. You may consider a range of sources to do this provided they are appropriate to the risk posed by the client or matter. |
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| 75 | 6.14.11.4 The Register of Overseas Entities | 6.14.11.4 The Register of Overseas Entities Overseas entities wishing to buy, sell or transfer property or land in the UK must now register with Companies House. An overseas entity is defined as a legal entity governed by the law of a country or territory outside the UK. This requirement applies to overseas entities who own real property in the UK and have done so since: • in England and Wales, on or since 1 January 1999 • in Scotland, on or since 8 December 2014 • in Northern Ireland, on or since 5 September 2022. Regulation 28(9) does not exclude the ROE as a register on which you can rely on for the purposes of verification under 28(4). Nonetheless, it is important not to rely solely on this or any other register. Regulation 30A, for example, introduced a discrepancy reporting requirement for the ROE which indicates that inconsistency may occur. The information provided by such registers should be verified independently. Entries on the Register of Overseas Interests are not public but copies may be obtained on application to Companies House. More information is available here. |
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| 86 | 6.16.2 Requirements introduced in 2020 | If you cannot identify the beneficial owner (where they have 25% or more than 25% holding of the company, |
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| 90 ,91 | 6.17.2.1 Establishing Source of Funds | SoF is not simply be limited to knowing from which financial institution the funds in question may have been transferred, except where the financial institution is providing financing for the transaction e.g. via mortgage. It should also not be limited to checking that the client's name matches the name on the account. In circumstances where a client declares that they have been given it becomes know that a third party is to contribute to funds for a transaction from a third party you may wish to record information relating to that original transaction too. you should consider also seeking to understand and obtain evidence relating to the third party's underlying SOF, in the same way you would on the client themselves, with the extent of such measure increasing with risk level. Whether and the extent to which you should obtain, review and evidence third party SOF is dependent upon the risk profile of the client or matter, bearing in mind that accepting payments from unknown or unassociated third parties is a specific risk factor pursuant to 33(6)(b)(iv). You may verify this by requesting bank statements The need for and extent of source of funds checks should be informed by your ongoing assessment of client and matter risk under regulations 28(11) to (13), and in turn inform future assessments. You must also bear in mind your obligation under regulation 28(16) to demonstrate that the measures you have taken to carry out due diligence are appropriate with reference to both PWRA and the relevant documentation relating to this transfer. sectorial risks assessment. SoF can often It may be difficult to determine the SOF without some understanding of the source of wealth underlying SOW of the individual. This can particularly be the case where the funds for a transaction have become mixed with other funds in an account. Here, to understand the SoF, you may need to have an awareness of the underlying SoW of the individual, although your level of confidence in the source of wealth SOW in such a case, should be considered on a risk-based approach (see 6.17.3 and 6.18.3 for further guidance on SOW. | |
| 92 | 6.18.1 Enhanced Due diligence and the Beneficial Ownership Threshold | In high-risk situation warranting the application of enhanced due diligence, it may be appropriate to examine beneficial owners with less than 25% ownership if you have concerns regarding the ownership structure or feel that the ownership structure is a pertinent risk factor, to fully understand control and ownership interests in the client. |
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| 93 | 6.18.2 What is EDD? | It may also mean lowering beneficial ownership thresholds below to 25% or less or conducting further screening or adverse media search on directors or beneficial owners of the client = |
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| 95 | 6.19.1 | The UK defines which countries are considered high-risk third countries under HRTCs are defined by the Rregulation as High-Risk jurisdictions Subject to a Call for Action or Jurisdictions Under Increased Monitoring by FATF. The list of countries is available here |
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| 98 | 6.19.3.1 Who is a PEP? | Section 2.16 of this |
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| 100 | 6.19.3.3 Mitigation of PEP Risk | Since 10 January 2024, the regulations state that in relation to domestic PEPs, that is, those entrusted with prominent public functions by the United Kingdom: • the starting point for the assessment is that the client or potential client presents a lower level of risk than a non-domestic PEP, and • if no enhanced risk factors are present, the extent of EDD measures to be applied in relation to that client or potential client is less than the extent to be applied in the case of a non-domestic PEP. |
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| 118 | 8 Training Compliance Principles | 32 33 |
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| 123 | 9 Internal Controls | 3 34 35 |
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| 135 | 11 Suspicious Activity Reporting Compliance principles | 29 |
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| 152 | 12.6 Reporting of Discrepancies on Registers | Detailed guidance on when a discrepancy needs reporting can be found in the following places: • Companies House • HMRC Trust Register. |
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| 158,159 | 13.3.1 Legal Advice Privilege (LAP) Advice within a transaction | 14 15 16 17 |
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| 161 | 13.4.3 Crime/fraud or iniquity exception Suspecting a transaction constitutes an offence | 38 [see discussion in Guidance at p xxx] |
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| 176 | 15.3 Other supervisors | References to Her Majesty will no doubt be updated to 'His' - in the next version | |
| 185 | 16.4 Defences to principal money laundering offences | You will have a defence to a principal money laundering offence if:
The Home Office has produced guidance on these defences. |
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| 187 | 16.4.4 De minimis exemption | 16.4.4 De minimis exemption ECCTA has amended the Proceeds of Crime Act 2002 so under certain circumstances an offence will not be committed in the following circumstances 63: • criminal property is transferred or converted under s.327(1)(c) and (d)1 • a person acquires, retains, uses or controls criminal property or on behalf of another person under 328(1) • criminal property is used, acquired or possessed under s.329(1). If the transaction: • takes place in the regulated sector • involves money or property valued at less than £1,000 • involves transferring or handing over to the client money or other property which belongs to or is owed to the client • is made for the purpose of exiting the relationship with the client and • the firm have complied with their duty to carry out CDD. 63 Note that these provisions do not apply where property is concealed (s.327(1)(a)), disguised (s.327(1)(b)), or removed from the jurisdiction (s.327(1)(e)). |
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| 188 | 16.4.4 De minimis exemption | There is accordingly no need to seek appropriate consent in order to make such a transfer to the client if all the conditions above are satisfied. However, a reporting obligation under s.330/331 would still arise if a suspicion has been formed in the course of regulated sector work, so, subject to privilege considerations, an information SAR may still be needed. It should be noted that the exemption is extremely narrowly defined, and therefore it is LSAG's opinion that it is likely to apply very rarely. The Home Secretary may also make regulation excluding certain transactions or sectors from the provisions. |
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| 188 | 16.4.5 Mixed-property transactions | 16.4.5 Mixed-property transactions • the firm is carrying on business in the regulated sector; and • the firm makes the transfer in connection with holding any money or assets for the client 64; and • there is knowledge or suspicion that part but not all of the money or assets is criminal property (the suspect part being the relevant criminal property); but • it is not possible, at the time the transfer takes place, to identify the part of the funds or property that is the relevant criminal property; and • the value of the funds in the account or accounts, or of the property which continues to be held by the firm, is not, as a direct or indirect result of the transfer, less than the value of the relevant criminal property at the time of the transfer. As with the 'paying away' exception described above, if all these conditions apply then there would be no need to seek appropriate consent in order to make such a transfer. However, a reporting obligation under s.330/331 (i.e. an information SAR) would still arise if a suspicion has been formed in the course of regulated sector work, subject to privilege considerations. Again, this is a very particular set of circumstances and LSAG would strongly caution against any attempt to enter into a transaction in anticipation of using these exemptions. If you are unable to determine whether this section would apply to funds or assets you or your firm are handling, we recommend you submit a defence against money laundering SAR in the usual way. 64 This also applies to acts done in operation an account which a client hods with a firm, but this unlikely to be relevant to the legal sector |
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| 193 | 16.7.4 Jurisdictional scope | An illustration of this is where a Chinese citizen, resident in China, wishes to transfer a sum of money in excess of $50,000 form their local bank account to one in the United Kingdom. Evasion of Chinese currency controls is not a crime in the uK, and has no equivalent in UK law, and so these funds are not automatically the proceeds of crime. The means used to effect the transfer, however: |
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| 214 | 19 Glossary | References to Her Majesty will not doubt be updated in the next version to state 'His' | |
| 217 | Acknowledgements | The Law Society of England & Wales Money Laundering Taskforce had a name change to the 'Economic Crime Task Force' in 2024. | |
| 221-228 | Schedule of amendments |
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Tips
- Read the LSAG 25 carefully
- Update your Risk Assessments (Firm Wide Risk Assessments, Client Matter Risk Assessments, Policies, Controls and Procedures, and other documents)
- Seek assistance and approval to vital documents
- Retain previous versions
- Document updates
- Disseminate the LSAG 25 and updates to all relevant staff
- Document Dissemination and engagement
- Update Training
- Keep training records
- Have regular meetings to discuss implementation and impact
- File reviews - to check implementation and remedial action needed
- Implement and record any remedial action
- Consider the use of external consultants
Source
Legal Affinity Group Guidance - dated 23/04/2025
Note the Schedule of Amendments mentioned in LSAG 25 at pages 221-228
Law Society of England and Wales note on the amendment
SRA AML Obligations page has been updated on 23/04/25
Note the SRA's forthcoming Live Webinars
At the time of writing this post, the SRA will be holding some Anti-Money Laundering webinars. Details of which see their website, their social media pages, and their youtube account.
Some Key Acronyms and Terms
| Acronym | Meaning |
| AML | Anti-Money Laundering |
| BO | Beneficial Owner |
| CMRA | Client Matter Risk Assessments |
| DAML | Defence Against Money Laundering |
| ECL | Economic Crime Levy |
| FATF | Financial Action Task Force |
| FWRA | Firm Wide Risk Assessment |
| HRTC | High Risk Third Country |
| LSAG | Legal Sector Affinity Group |
| PEPs | Political Exposed Persons |
| RBA | Risk Based Approach |
| SOF | Source of Funds |
| SOW | Source of Wealth |
| ECCTA | The Economic Crime and Corporate Transparency Act 2023 |
Disclaimer
This post is not legal or regulatory advice
Please read the source material yourself and make your own decisions.