In a move that underscores the UK legal sector’s evolving role in the fight against financial crime, the Legal Sector Affinity Group (LSAG) has released its latest update to the HM Treasury-approved Anti-Money Laundering (AML) guidance, effective April 2025. These changes are not just tweaks. They reflect a deeper recalibration of how firms must approach compliance, ethics and client risk in an increasingly complex global landscape.
What do legal professionals, compliance officers and firm leaders need to know?
The key changes
This update replaces both the March 2023 guidance and the December 2023 addendum, consolidating recent legal, regulatory and geopolitical developments. Among the most significant changes:
- Economic crime levy applicability – Firms with a turnover over £10.2 million must now consider the economic crime levy and its implications on operational compliance budgets.
- Third party source of funds clarity – Updated guidance offers more robust direction on handling third-party contributions which is an area ripe for abuse and long a grey zone in legal services.
- New high-risk third country (HRTC) definition – The list of jurisdictions deemed high-risk for AML purposes has changed. This affects Enhanced Due Diligence (EDD) obligations, especially for firms working with clients in or connected to countries like Laos and Nepal (newly added), while the Philippines has been removed. However, caution remains warranted as removal from FATF lists doesn’t always equal low risk.
- Overseas entity requirements – Foreign entities dealing with UK property must now register with Companies House, a reform tied to the UK’s broader transparency agenda under the Economic Crime Act.
Guidance with legal weight
While technically optional, LSAG’s guidance carries substantial authority. It’s HM Treasury-approved, and courts are required to consider adherence to it when evaluating AML compliance under the Proceeds of Crime Act 2002. Ignoring it can expose firms not only to reputational risk but to significant legal consequences.
Sector-specific advice? One size doesn’t fit all
The new guidance includes tailored advice for:
- Barristers and BSB entities
- Trust and Company Service Providers (TCSPs)
- Self-employed practitioners
- Legal support staff working under different supervisory bodies
The second part of the guidance digs deep into the nuances of practice-specific risk, with FAQs, real-world typologies and case studies on property transactions, beneficial ownership, and more.
Recent case law: A compliance wake-up call
The Court of Appeal’s decision in World Uyghur Congress) v the NCA changes the landscape. The ruling clarifies that the “adequate consideration” exemption doesn’t apply to POCA. This has serious implications for those relying on technicalities to justify potentially questionable transactions. The guidance is in the process of being amended to reflect this.
Emerging risks aren’t left out of the guidance. The LSAG also addresses:
- AML challenges linked to remote working and digital onboarding
- Economic volatility and how it alters risk profiles
- Growing concerns about underground banking channels out of China
What to do now
- Review the new guidance. Focus especially on the Schedule of Amendments (pages 221–228) for a concise summary of what’s changed.
- Update your AML policies and risk assessments. This includes firmwide procedures, client onboarding processes, and document retention policies.
- Train your staff. Compliance isn’t just for MLROs. All staff must understand the new rules and how to spot red flags.
- Reassess existing client relationships. Re-evaluate ongoing matters involving high-risk jurisdictions, especially if your clients or third parties are connected to newly flagged countries.
- Document, Document, Document. Being able to justify your decisions, especially any deviations from LSAG guidance, is critical. Courts and regulators expect to see a well-documented rationale.
Ethical compliance = good business
The April 2025 guidance is an opportunity to align your firm with a higher standard of ethical practice and rebuild trust in a profession increasingly scrutinised for its role in global finance.
In the current climate, compliance isn’t just about avoiding penalties. It’s about shaping the future of the legal industry.
Law firms can easily fall out of compliance or get caught up in dirty money without a robust AML framework. Packed with realistic scenarios, real-life case studies and customisation options, Vinciworks’ suite of AML courses will help you stay protected.
