LSAG: Legal Sector Affinity Group

Definition

The Legal Sector Affinity Group (LSAG) is a UK-based coalition of regulatory and representative bodies within the legal profession that jointly develop anti-money-laundering (AML) and counter-terrorist-financing (CTF) guidance specifically tailored to the legal sector.

LSAG’s guidance is recognised by HM Treasury and serves as a benchmark for legal practices’ compliance under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended).

Explanation

LSAG operates as a collaborative framework bringing together key legal regulatory authorities and professional bodies to address sector-specific financial crime risks.

By pooling expertise from solicitors, barristers, notaries, and trust or company service provider segments, the group produces guidance that reflects the unique risk exposures of legal work, such as property transactions, corporate structuring, trust and estate planning, and client money management.

The guidance issued by LSAG is structured to cover general practice obligations (Part 1) and more specialised duties for disciplines such as barristers/advocates (Part 2a), trust or company service providers (Part 2b), and notaries (Part 2c).

The sectoral approach helps legal professionals navigate their obligations through a risk-based lens, understanding when a legal matter triggers AML/CTF obligations and how to apply procedures proportionately.

For legal firms, compliance with LSAG guidance is not simply best practice; it is treated by many supervisory authorities as the standard against which professional conduct and AML oversight may be judged.

The status of the guidance has been elevated through HM Treasury approval, increasing its regulatory weight.

LSAG in AML/CFT Frameworks

The work of LSAG is central to embedding sector-specific financial crime controls within broader AML/CFT regimes.

Key intersections include:

Risk Identification and Firm-Wide Risk Assessment

• Legal practices must consider LSAG guidance when conducting firm-wide risk assessments, identifying inherent exposures in legal services such as conveyancing, company formation, trust management, and international transactions.

• The guidance emphasises scenarios where client money, high-value real-estate deals, cross-border instructions or tax advice may pose elevated risks.

• Firms must account for legal professional privilege, while recognising that privilege does not negate AML obligations when certain service types are provided.
  

Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)

• LSAG emphasises that clients receiving legal services that involve financial or real-property transactions may require client due diligence, identification of beneficial owners, verification of source of funds/wealth, and ongoing monitoring.

• For higher-risk matters, such as non-resident transactions, politically exposed persons (PEPs), or clients in high-risk jurisdictions, firms should apply enhanced procedures.
  

Sanctions Screening and Intermediaries

• Legal practices must screen clients, beneficial owners, and transaction counterparties for sanctions or watch-list status, especially in cross-border work or matters involving complex ownership structures.

• The guidance highlights the need to consider the risk posed by intermediaries, agents, or correspondents when the legal practice engages with parties outside its direct client relationship.
  

Transaction Monitoring and Reporting Suspicious Activity

• Although much of lawyers’ work involves advice rather than direct transaction execution, firms must still be vigilant where they may “act for or on behalf of” a client in a transaction relating to property, funds, securities, or trusts.

• LSAG reinforces that failure to carry out appropriate checks, or to challenge suspicious instructions, can lead to regulatory sanctions and criminal liability under the Proceeds of Crime Act.
  

Governance, Training, and Record-Keeping

• The guidance places obligations on firms to appoint an AML officer, ensure appropriate oversight from senior management or partners, maintain written policies and procedures, deliver periodic training, and keep clear records of CDD, risk assessments, and firm-wide controls.
  

Key Components of LSAG Guidance

Part 1: General AML Guidance for Legal Practices

• Defines the scope of regulated services (such as property transactions, corporate/commercial work, trust or company service provider work).
  
• Sets out core principles including risk-based approach, CDD, ongoing monitoring, record-keeping and governance.
  
• Addresses how legal privilege interacts with AML obligations and when suspicion of money laundering overrides privilege.
  

Part 2: Specific Guidance for Sub-Sectors

• Part 2a: Barristers and advocates, focus on advocacy, litigation, and the degree to which their work may or may not trigger AML obligations.

• Part 2b: Trust or company service providers (TCSPs), addresses high-risk work such as formation, management, or administration of companies/trusts or provision of such services.

• Part 2c: Notaries and other specialist legal professions—tailored to notarial acts, certification, cross-border documents, and a higher risk of misuse.
  

Supervisory Framework and Regulatory Status

• LSAG consists of a collaboration of the sector’s AML supervisory authorities and representative bodies (for example, solicitor and barrister regulators), which coordinate to produce guidance aligned with the Money Laundering Regulations and the Proceeds of Crime Act.

• HM Treasury approval confers on LSAG guidance a formal status; non-compliance by a legal practitioner may be taken into account by courts or regulators when assessing whether the practitioner exercised “all reasonable steps and exercised all due diligence”.
  

Examples of LSAG Guidance Application

• A law firm advises an overseas client on a UK property purchase involving a complex ownership structure and financing from a high-risk jurisdiction. LSAG guidance drives the firm to perform enhanced CDD, verify ultimate beneficial ownership, conduct source of funds checks, and monitor suspicious signs such as rapid onward transfer of funds.

• A notarial practice certifies documents for a client in a jurisdiction flagged for corruption risk. LSAG guidance prompts the practice to assess whether the certification forms part of a “financial transaction” and whether AML obligations are triggered, including assessing the risk of falsified identity or shell‐company structures.

• A barrister is instructed on litigation work. LSAG Part 2a clarifies that purely contentious work generally falls outside AML scope, but where the instruction involves direct transactional advice or asset recovery, AML obligations could apply, and the firm must evaluate accordingly.
  

Impact on Legal Practices & Financial Crime Controls

Strengthened Sector-Specific Protection

LSAG provides a sector-tailored framework that helps legal firms understand how broad AML/CTF obligations apply in legal-service contexts.

As a result, legal practices can better align their compliance posture with the specific nature of their risks.

Regulatory Assurance and Defence

By adhering to LSAG guidance, legal practitioners reinforce their position when regulators or courts assess compliance.

The guidance supports demonstrating that the firm has taken reasonable steps to avoid facilitating money laundering or terrorist financing.

Operational Clarity and Risk Mitigation

The structured guidance enables firms to calibrate risk-based controls, e.g., identifying when lower-risk advice-only work is exempt versus when heightened diligence is warranted.

This clarity reduces compliance burden while securing effective controls.

Enhanced Integration with Financial Institutions

Legal firms collaborating with banks or other regulated entities often need to demonstrate robust AML controls.

Compliance with LSAG guidance facilitates smoother relationships with financial services partners, correspondent banks, or supervisory bodies.

Reputational and Business Continuity Benefits

Failure to apply LSAG-aligned controls can lead to disciplinary action, criminal exposure, or reputational damage.

Conversely, robust implementation reduces the risk of association with illicit activity and supports client trust.

Challenges in Implementing LSAG Guidance

Complexity of Legal Work

Legal matters often involve layered structures, multi-jurisdictional elements, trusts, client-money management, and time-sensitive transactions, making risk assessment and control harder in practice.

Integration with Privilege and Confidentiality

Navigating the boundary between legal professional privilege and AML obligations remains intricate.

Firms must ensure compliance without breaching client confidentiality or privilege without appropriate justification.

Variable Scope and Service Lines

Not all legal work triggers AML obligations, yet practitioners may struggle to identify when obligations apply.

Misclassification of work or client types can lead to over- or under-application of controls.

Evolving Landscape

Changes in regulations, guidance, sanctions regimes, high-risk jurisdictions, and typologies require continuous monitoring.

LSAG updates must be integrated promptly into firm-wide policies and training.

Resource and Expertise Constraints

Smaller practices may lack dedicated AML officers or specialist resources.

Implementing LSAG guidance effectively demands appropriate expertise, technology, governance, and training investment.

Regulatory Oversight & Governance

Legal Sector Supervisory Authorities

Each legal sub-sector has specific AML supervisors (e.g., solicitor regulatory bodies, bar regulators, notarial oversight bodies).

These supervisors rely on LSAG guidance to assess firm-wide risk frameworks and compliance.

HM Treasury Recognition

The approval of LSAG guidance by HM Treasury means that it carries evidential weight in legal professional conduct and AML oversight.

A court or regulatory body may view adherence (or the lack thereof) to LSAG guidance when evaluating whether a firm took “all reasonable steps and exercised all due diligence”.

Internal Governance Requirements

Firms must appoint a designated AML compliance officer, maintain up-to-date policies and procedures, provide training, conduct internal reviews, record decision-making, and ensure oversight by senior management or partners.

External Audit and Assurance

Some practices may be required to report to their supervisory body or submit evidence of compliance assessments.

Board or partner involvement, independent reviews, and audit trails are key to demonstrating adherence to LSAG-aligned controls.

Importance of LSAG for AML/CFT Compliance

For legal practices, LSAG guidance is not optional—it is a fundamental component of a robust AML/CFT compliance framework. It helps firms:

• Align their policies and procedures with recognised sector standards.
  
• Demonstrate to regulators, banks, and clients that the firm is aware of and addresses money-laundering and terrorist-financing risks in the legal sector.
  
• Support risk-based decision-making and resource allocation.
  
• Reduce the likelihood of regulatory, criminal, or reputational consequences from failing to apply appropriate controls.
  
• Maintain the integrity of the legal profession and its role in the financial ecosystem.
  

Given the evolving nature of financial crime risks, particularly in legal-services contexts (such as real-estate, trusts, corporate structuring and cross-border work), staying aligned with LSAG guidance ensures that firms remain aware of emerging threats, typologies and supervisory expectations.

Related Terms

• Risk-Based Approach
  
• Customer Due Diligence (CDD)
  
• Enhanced Due Diligence (EDD)
  
• Beneficial Ownership
  
• Legal Professional Privilege (LPP)
  
• Trust or Company Service Provider (TCSP)
  
• Sanctions Screening
  

References

• The Law Society – Anti-Money Laundering Guidance for the Legal Sector (April 2025)
  
• Solicitors Regulation Authority (SRA) – Your AML (“Your AML obligations”) page (17 Oct 2025)
  
• Faculty Office – Legal Sector Affinity Group LSAG Guidance Update (23 Apr 2025)

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