Your LSAG Questions Answered: An Expert Q&A

1. Is someone who owns exactly 25% of a company now considered a beneficial owner?

This is a subtle but important clarification in the new guidance. The answer is no.

Beneficial ownership is defined in Regulation 5 of the MLR 2017.

The guidance, until the recent update, did not align perfectly with legislation. The guidance has officially shifted from anyone owning "25% or more" to "more than 25%".

However, the bigger change is the introduction of the "reasonable measures" test. “Reasonable measures” are not a fixed checklist. You must decide based on the money laundering/terrorist-financing risks of the client and matter what depth of enquiry is needed, and be able to show your supervisor why that level was enough.

2. The guidance says we must treat domestic PEPs as ‘lower risk’. What does that actually mean for our processes?

This is a change, that has created some ambiguity.

The guidance now formally distinguishes between "overseas PEPs" and "domestic PEPs" (those based in the UK). The crucial update is that you should treat domestic PEPs as "lower risk" from the start, unless other risk factors are present.

However, as we discussed in the webinar, the guidance itself is "pretty unhelpful" about what practical difference this should make to your Enhanced Due Diligence (EDD) process.

Therefore, it's up to your firm to define its own "lower risk" approach. This could mean implementing a different level of senior management approval for domestic PEPs or putting them on a less frequent monitoring schedule compared to their overseas counterparts. The key is to update your policies and train your team on whatever approach you decide to take.

It is worth reviewing the FCA guidance around the treatment of PEPs:

• The treatment of politically exposed persons

• FG25/3: Treatment of politically exposed persons

3. How seriously should we be checking the source of funds for a third party, like a parent gifting a deposit?

Very seriously. This is an area where the language in the guidance has been significantly "beefed up".

Previously, it was suggested that firms "may want to consider" checking the source of funds from third-party funders. The guidance now states that you "should" verify them with the same rigour as you would your own client.

Terminology refresher: the LSAG guidance uses “must,” “should” and “may” throughout to contextualise how to understand the various directions.

Should – good practice for most situations. These may not be the only means of complying with the requirements and there may be situations where the suggested route is not the best option. If you do not follow the suggested route, you should be able to justify to supervisors why your alternative approach is appropriate, either for your practice, or in the particular instance.

4. Which firms have to pay the new Economic Crime Levy?

The Economic Crime Levy applies to all firms with a UK revenue exceeding £10.2 million. It’s part of a wider government strategy to fund crime enforcement.

The levy is structured in bands based on turnover:

• Medium firms (£10.2 million to £36 million revenue): £10,000 annual levy.

• Large firms (over £36 million revenue): £36,000 annual levy.

• Very large firms (over £1 billion revenue): £500,000 annual levy.

Learn more here.

5. Where do we now find the list of high-risk third countries?

The UK has changed its approach here. Instead of maintaining its own national list, the UK now defers to the lists published by the Financial Action Task Force (FATF).

These are commonly known as the "black list" and "grey list" and are reliably updated in February, June, and October each year. The next update can be expected on the 24th October 2025 on the last day of the FATF Plenary and Working Group Meetings in Paris, France. When a transaction involves a country on these lists, you are required to apply the stringent EDD measures outlined in Regulation 33. As Jonathon noted, the recent addition of the British Virgin Islands (BVI) to the list is a particularly significant development that will impact many firms.