On 23 April 2025, the Legal Sector Affinity Group (LSAG) released a significant update to its Anti-Money Laundering (AML) Guidance, approved by HM Treasury. This update replaces the March 2023 guidance and the December 2023 addendum, and is now the authoritative source for AML compliance across the legal sector [1].
For small law firms and sole practitioners, staying compliant with AML regulations is not just a regulatory requirement—it’s essential for protecting your practice, your clients, and your reputation. This blog post breaks down the key changes in the 23 April 2025 LSAG guidance and what actions you need to take.
Please note many of these updates have already been announced elsewhere, however this is an updated document approved by HM Treasury 23 April 2025.
Why This Update Matters
The LSAG guidance is the official interpretation of the Money Laundering Regulations 2017 for the legal sector. It applies to all firms supervised by the Solicitors Regulation Authority (SRA) and other legal regulators. The 23 April 2025 update reflects evolving risks, regulatory expectations, and legislative changes, including the Economic Crime and Corporate Transparency Act 2023 (ECCTA).
Key Changes approved on the 23 April 2025 for LSAG AML Guidance
- Beneficial Ownership Threshold Clarified
The definition of a beneficial owner has been updated. The threshold has changed from “25% or more” to “more than 25%”. This subtle but important change affects how firms identify individuals with significant control in corporate structures.
Action for firms: Review your client due diligence (CDD) procedures and update any templates or checklists that reference the old threshold.
- New Definition of High-Risk Third Countries (HRTCs)
Following the removal of Schedule 3ZA from the Money Laundering Regulations, the definition of high-risk third countries now aligns with the Financial Action Task Force (FATF) lists.
Action for firms: Ensure your risk assessments and CDD processes reflect the new HRTC definition. Regularly check the FATF list for updates.
- Economic Crime Levy (ECL) Guidance
Although the Economic Crime Levy only applies to firms with annual turnover exceeding £10.2 million, the LSAG guidance now includes detailed information on registration and payment obligations.
Action for small firms: While most sole practitioners and small firms fall below the threshold, it’s important to document your turnover and confirm exemption in your Practice-Wide Risk Assessment (PWRA).
- Supply Chain Risk Emphasis
New guidance has been added on supply chain risk, urging firms to understand the end-to-end activities of their clients and identify potential AML vulnerabilities.
Action for firms: Update your PWRA to include supply chain risk considerations, especially if you act for clients involved in complex or international transactions.
- Domestic Politically Exposed Persons (PEPs)
The guidance now includes specific references to domestic PEPs, reflecting the UK’s evolving stance on politically exposed individuals.
Action for firms: Review your PEP screening procedures to ensure they include domestic PEPs and apply a risk-based approach rather than blanket enhanced due diligence.
- Register of Overseas Entities (ROE)
A new subsection addresses the Register of Overseas Entities, introduced under the ECCTA. Firms must now consider ROE compliance when dealing with overseas clients owning UK property.
Action for firms: If you handle property transactions involving overseas entities, ensure your CDD includes checks against the ROE.
- De Minimis Exemption and Mixed Property Transactions
The guidance introduces new sections on the de minimis exemption and mixed property transactions, offering clarity on when simplified due diligence may apply.
Action for firms: Assess whether any of your transactions qualify for these exemptions and document your rationale clearly.
- Third-Party Contributions to Source of Funds
There is now enhanced guidance on verifying the source of funds when third parties contribute to a transaction.
Action for firms: Update your source of funds procedures to include third-party contributors, ensuring you verify their identity and the legitimacy of the funds.
- Clarifications on Client Identity Verification
Paragraphs have been updated to clarify the documents required to verify name, address, and date of birth, particularly in light of digital onboarding.
Action for firms: Review your ID verification processes and ensure they meet the updated standards, especially if you use electronic verification tools.
What Small Firms and Sole Practitioners Should Do Now
- Read the Full Guidance
The updated LSAG guidance is available on the SRA website and should be read in full. The amendments are detailed in pages 221–228 of the document [1].
- Update Your Practice-Wide Risk Assessment (PWRA)
Your PWRA must reflect the April 2025 changes. This includes documenting how your firm addresses new risks such as supply chain exposure, domestic PEPs, and third-party contributions.
- Review and Revise AML Policies and Procedures
Ensure your AML manual, CDD checklists, and training materials are updated to reflect the new guidance. Remove references to the 2023 guidance and December 2023 addendum.
- Train Your Staff
Even in small firms, AML compliance is a team effort. Make sure all staff are aware of the changes and understand how they affect day-to-day operations.
- Document Everything
Regulators expect firms to evidence their compliance. Keep records of your updated policies, risk assessments, and training logs.
Final Thoughts
The April 2025 LSAG AML guidance update is a timely reminder that AML compliance is not static. For small firms and sole solicitors, the key is to embed these changes into your daily practice without overburdening your resources.
By proactively updating your risk assessments, procedures, and training, you not only stay compliant—you also protect your firm from reputational and regulatory risk.
References
[1] SRA | Your AML obligations | Solicitors Regulation Authority
[2] LSAG AML Guidance update April 2025 what has changed