News and information from the world of
regulatory compliance and risk management

LSAG Anti-Money Laundering Guidance Updated
29 March 2023

The Legal Sector Affinity Group (LSAG) has updated its anti-money laundering guidance for regulated firms. This guidance has been approved by HM Treasury.

There is now further guidance in a number of areas. Of particular note is the requirement for firms to carry out a risk assessment regarding proliferation financing. Proliferation financing refers to the provision of financial services or support that facilitates the proliferation of weapons of mass destruction or their delivery systems. This type of financing can be used by individuals or entities involved in terrorism or organised crime. The updated LSAG guidance points out that law firms are vulnerable to being used for proliferation financing due to their involvement in financial transactions in relation to mergers and acquisitions, capital raising and other business activities. You may also be at risk if you have clients in high-risk jurisdictions or sectors. To mitigate the risks of proliferation financing, you are required to identify and manage the risks and have appropriate policies and procedures in place. These should include conducting enhanced due diligence on clients and transactions that are considered high-risk as well as training staff on the risks of proliferation financing and the relevant legal and regulatory requirements.

The SRA considers that the overall risk to the profession is low, and most firms will be able to briefly assess their exposure to this risk within their existing firm-wide risk assessment, after taking into account the National Proliferation Risk Assessment and the SRA’s own Sectoral Risk Assessment.

Some services are at higher risk of exposure to proliferation financing. The SRA expects to see a more detailed proliferation financing risk assessment from firms working in the following areas:

  • trade finance
  • commercial contracts
  • manufacturing particularly in relation to dual-use goods
  • commodities – particularly mined metals and chemicals
  • shipping/maritime
  • military/defence
  • aviation

Further, the updated guidance now restricts the requirement for firms to notify inconsistencies to company registries. This now applies only to the following situations:

  • The establishment of a business relationship is with a company, a limited liability partnership, a Scottish partnership, a trust that requires registration with HMRC’s trust registry, or an overseas entity that needs to register due to the ownership of UK real property;
  • The inconsistency is considered “material” and not a mere typing error or minor spelling mistake; and
  • The inconsistency can reasonably be perceived, based on its nature and all relevant circumstances, as linked to money laundering or terrorist financing, or aimed at concealing information about the customer’s business.

Please visit Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector 2023 (PDF 220 pages, 2.3MB) to read the guidance.

read more articles