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New LSAG guidance: Practical updates for AML compliance

The Legal Sector Affinity Group (LSAG) has rolled out its updated anti-money laundering guidance, which has been approved by HM Treasury and took effect on 23 April 2025. This isn’t just another regulatory refresh; it’s a call for law firms and lawyers to rethink how we identify and manage risks that can lurk for years before a financial crime takes hold.

What’s changed with the LSAG guidance?

You may recall that there was an addendum published in December 2023. This latest April 2025 version of the LSAG guidance is the implementation of that addendum into the guidance itself. 

Here’s the SRA’s page information:

LSAG guidance now updated

04 April 2023

We are part of the Legal Services Affinity Group (LSAG), formed of all AML regulators for legal services in the UK. LSAG has produced extensive guidance on the Money Laundering Regulations and the obligations they put on you and your firm.

This guidance has recently been updated to include:

The introduction of a requirement to carry out proliferation financing risk assessments, either as part of the firm’s existing practice-wide risk assessment or as a standalone document.

Changes to the duty to report discrepancies to company registries – from 1 April 2023, these will only need to be made in certain defined circumstances.

Our AML team has started the round of AML inspections for the 2023/24 financial year and from now on will be considering firms’ proliferation finance risk assessments.

What’s been updated?

There is detail on this within the guidance itself on pages 221 to 228, but there are a few areas worth highlighting:

  • Change to the wording used for beneficial owner shareholders from ‘25% or more’ to ‘more than 25%’.
  • New definition of high-risk third country following the removal of Schedule 3ZA from the Money Laundering Regulations.
  • Additional information regarding the Economic Crime Levy – payable if annual turnover exceeds £10.2 million.
  • Additional information on supply chain risk.
  • New subsections relating to The Register of Overseas Entities, De minimis exemption and mixed property transactions.
  • Updated guidance where you received contributions from third parties towards source of funds.
  • Text added in reference to the new regulation on Domestic PEPs.

What do you need to do?

Read the new guidance! Grab a coffee and take your time to absorb the details. The LSAG’s PDF is substantial (228 pages!) but you can read it here.

Firm/practice wide risk assessments (FWRA)

It is highly recommended you take this time to update your FWRA to confirm that you have read and understood the new guidance.

Once done, you must document in that FWRA any actions you are going to be taking as a result of the changes.

Policy and procedure updates

Once you have updated your FWRA, you may have actions which include updating your AML policies and procedures, so it’s worth having a quick peek at the latest updates to ensure they’re up to date. The new guidance replaces the guidance issued in 2023 (and the December 2023 addendum), so make sure any references to either of these documents in your AML policies and procedures are removed and replaced with the 2025 guidance.

Remember to let all your staff know about the changes you make to your AML policies and procedures too. 

And…evidence it!

Staff training

The above point of cascading all the updates to your staff via training would be beneficial to all (internal and external reasoning). 

SRA thematic review key findings:

We expect firms to put in place a comprehensive AML training programme which is relevant to the legal sector and specific to their firm.

The SRA was firm when it said:

Solely asking fee earners to read your AML policy would not satisfy training requirements under regulation 24 MLR.

The big picture

The guidance may not have been succinct enough for many, including the update on Politically Exposed Persons (PEPs). In the new amended LSAG Guidance 6.19.3 it simply says that the ‘start point’ would be that domestic PEPs present a lower level of risk (than those based internationally). Leaves it rather ambiguous and rather unclear at this present time.

Supply chains in law are under more scrutiny when it comes to AML. The new guidance note introduced information on understanding the whole chain of services (or transactions) that lie behind your clients. This looks to be the case when multiple “parties” will be involved in the matter. Our ASK TEAL service is perfect for these need to know answers! 

Here’s the Supply Chain clause 5.1.1:

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, eg accountants or company formation agents, and ensuring that these services fit with your understanding.

Always be on high alert, raise pertinent questions where required and evidence the answers with high levels of due diligence and risk management. 

Ultimately, money launderers operate over the long term. It’s literally their profession, so their planning, research for targets and operations are all about future gains and continued goals. They build trust slowly, exploiting tiny gaps in AML frameworks that, over time, can lead to significant financial crime. 

For you as conveyancers, these micro risks require a proactive, risk-based approach that lets you cut through the clutter. By embracing the updated LSAG guidance, you’re not simply complying with new rules, you’re fortifying your defences against economic crime and fraud.

Taking these steps not only enhances your firm’s security but also reinforces the trust your clients place in you. With clear, updated guidance and the right technology at your side, you can manage compliance in a way that is both effective and efficient.

 

Rhiannon Davies is an Associate at Teal Compliance



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