Beyond box-ticking: A practical guide to the LSAG 2025 'Reasonable Measures' test

The new standard: Understanding over collection

The formalisation of the "reasonable measures" test marks a significant evolution in AML compliance. No longer can firms simply gather standard documentation and call it a day. Instead, the new guidance demands a thoughtful, risk-based approach that scales with the complexity and risk profile of each client.

As compliance expert Jonathon Bray noted during our recent webinar, "This is about moving from ticking boxes to demonstrating you truly understand who controls your client entities."

What makes measures "Reasonable"?

The beauty and challenge of the reasonable measures test lies in its flexibility. There's no one-size-fits-all approach, which gives firms freedom to tailor their processes, but also introduces uncertainty about what regulators expect.

Three core principles should guide your approach:

• Risk proportionality: The depth of your investigation should directly correlate with the risk level. A simple UK company requires less scrutiny than a multi-layered offshore structure.

• Documented reasoning: Your file should demonstrate not just what you did, but why those steps were appropriate given the risk assessment.

• Genuine understanding: Beyond collecting documents, you must show you've pieced together how control actually works within the structure.

Practical implementation steps

Translating guidance into practice requires a systematic approach:

1. Update your risk matrix

Ensure your risk assessment framework explicitly captures factors that complicate ownership structures: jurisdictional complexity, use of nominees, trust arrangements, and governance mechanisms beyond simple shareholding.

2. Create tiered verification processes

Develop clear protocols for what "reasonable measures" look like at different risk levels. For example:

• Standard verification: Companies House checks, structure charts, ID verification of 25%+ shareholders

• Enhanced verification: Constitutional documents, written statements about control arrangements, verification of controllers below 25% thresholds

3. Train for critical thinking

The reasonable measures test requires staff to exercise judgment. Regular training using real-world examples helps teams understand when standard processes are sufficient and when to dig deeper.

4. Document your thought process

The SRA won't just check that you collected information - they'll assess whether your approach made sense. Create templates that prompt fee-earners to explain their reasoning and conclusions about control arrangements.

Common pitfalls to avoid

• Treating all clients the same: A one-size-fits-all approach fundamentally misunderstands the risk-based nature of "reasonable measures."

• Focusing only on shareholding: The 25%+ threshold is just a starting point. Control can exist through other mechanisms like voting rights, veto powers, financing arrangements, day to day interactions.

• Failing to challenge inconsistencies: When information from different sources doesn't align, reasonable measures require you to resolve these discrepancies.

• Missing the review triggers: Ownership structures change. Your processes should identify when new verification is needed.

Final thoughts

The LSAG 2025 guidance marks a significant maturation of AML compliance in the legal sector. Rather than viewing it as just another regulatory burden, firms should embrace the reasonable measures test as an opportunity to develop deeper client understanding. This approach not only strengthens client relationships but also protects firms from regulatory risks.

"Reasonable measures" now serve as the benchmark that supervisors apply during file review inspections. Firms must evolve from simply "identifying & listing" to "understanding, testing and recording." Always document why your chosen enquiries are reasonable.

The consensus is clear across all stakeholders—supervisors, consultants, and compliance professionals are unanimously emphasising the same principle: reasonable, risk-based enquiry backed by clear evidence.