We have previously reported that the Government has consulted on changes to improve the effectiveness of the Money Laundering Regulations (MLRs). The outcome of that consultation has now been published and can be viewed here – MLRs_Consultation_Response.pdf.

The reality for Law Firms is that it does not appear to bring any significant change. The Legal Sector Affinity Group (LSAG) has already addressed a number of the points that will be further clarified.  While there may be some adaptations to LSAG, they appear to be relatively minor.

The theme of the consultation was to:

• Make customer due diligence more proportionate and effective.
• Strengthen system coordination on economic crime.
• Provide clarity on the scope of the MLRs.
• Reform registration requirements for the Trust Registration Service.

The areas of change have been separated into the following sections:

• Enhanced due diligence on complex transactions.
• Enhanced due diligence on high-risk third countries.
• Due diligence on pooled client accounts.
• Due diligence triggers for certain non-financial firms.
• Onboarding of customers in bank insolvency scenarios.
• Information sharing between supervisors and other public bodies.
• Supervisor cooperation with Companies House.
• Currency thresholds that are currently in euros.
• Regulation of the sale of ‘off-the-shelf’ companies by Trust and Company Service Providers.
• Registration and change in control for cryptoasset service providers.
• Registration requirements for the Trust Registration Service.

To summarise the outcome and proposals, it appears we can expect the following.

• Customer Due Diligence
  • There will be no fundamental changes, but the following is important to note:
    • Clarity to be provided on when a business relationship is established (LSAG already assists with this).
    • Better guidance on what constitutes establishing a business relationship on a sectoral basis.
• Source of funds Checks
  • Improved guidance to better explain what is necessary to complete source of funds checks (note LSAG was updated in 2025 on this point).
• Acting For Clients – clarity in relation to agents and third parties
  • Clearer guidance by sector on what ‘acting for’ means when it comes to dealing with natural persons (individuals) and non-natural persons (entities), with a focus on employees.
• Digital identity verification
  • Clarity on the definition of a digital identity, and to provide further detail on how digital identities can be used in line with the MLRs’ risk-based approach. 
  • Linking Identity Check Services to the new Data (Use and Access) Act 2025 and the introduction of audits on providers.
• Enhanced due diligence (EDD)
  • No changes are planned for what will trigger EDD, but sectoral guidance and the conditions under which EDD is mandatory may be provided (LSAG already does this).
• ‘Complex or unusually large’ transactions
  • The regulation will be amended to clarify that EDD is required on “unusually complex” transactions, instead of all complex transactions.
  • There will be no change to the requirement to apply EDD to “unusually large” transactions.
• High Risk Third Countries (HRTC)
  • The regulations will be amended in respect of HRTCs, mandating EDD only where the relevant transactions or customer relationships involve a person established in a Call for Action country, not an Increased Monitoring List country.
  • Broader requirements around assessing geographic risk will remain, including provisions that firms must consider both the Financial Action Task Force (FATF) lists when carrying out customer risk assessments.
  • Firms will continue to be required to apply EDD based on geographic risk factors.
  • The FATF standards only require EDD to be mandatory for countries on the Call for Action list, which will continue to be the case following this change.
  • It is expected that Firms should direct resources to matters involving high-value compliance activity.
• Simplified due diligence (SDD)
  • Pooled Client Account monies will no longer qualify for SDD.
• Regulation of sale of off-the-shelf companies by Trust and Company Service Providers (TCSPs) 
  • The regulations will be amended to include the sale of off-the-shelf companies within their scope, thereby putting this within the scope of regulated TCSP activity.
• Registration of non-UK express trusts that hold UK land 
  • The regulations will be amended to include within the regulations all non-UK trusts that hold an interest in UK land and property acquired before 6 October 2020.
  • The Government will bring all non-UK express trusts holding UK land within the Trust Registration Service data sharing rules and thus make them available to the public on request.
• De minimis exemption for registration
  • The Government will introduce a de minimis exemption for certain trusts currently required to register on TRS and provide simplified criteria in determining whether a trust qualifies for a de minimis exemption.
  • The exemption will apply to trusts that:
    • are not liable for relevant UK taxes.
    • do not own or have an interest, (whole or in part), in UK land or property.
    • do not exceed £10,000 in the value of accumulated assets held.
    • do not have more than £5,000 in income per annum.
    • do not have more than £2,000 of “appreciable” non-financial assets (art, jewellery, antiques, etc).

There are other proposed changes, but these relate more to the supervisors and out of industry issues that will not impact Law Firms directly.

The proposed changes need to be put before Parliament before they are endorsed and brought into the regulations.

If you are a member of the Regulation and Compliance Offices (RACO) compliance service, we will update your AML and related policies to reflect the final changes when they are released.

Compliance and Regulation Support UK

All firms must demonstrate and uphold high standards in their AML systems and processes, as well as in their management and supervision. This also involves outlining how the firm operates, including the conduct of staff in accordance with established policies, controls, and procedures.

At the Regulation & Compliance Office, we can offer a number of outsourced support solutions, including:

• Regulation & Compliance Service – Our Regulation and Compliance Service, Inc. Risk Management Assessment and AML Risk, provides a cost-effective but essential solution for law firms to ensure they achieve a compliant environment. We work with firms of all types, from sole practitioners through to partnerships, Limited Companies and ABSs. We recognise that it is essential to recognise how a firm implements compliance to tailor the solution to each firm’s working practices. This is why our service is completely bespoke to each firm we work with.
• Regulation & Compliance Outsource Guidance and Support Service – This service provides law firms with a cost-effective outsourced solution which sees the compliance managers of RACO take on the day-to-day guidance and support expected to be provided by COLPs, COFAs, Data Compliance Officers, MLROs and MLCOs. This addition to the Regulation and Compliance Service—including Risk Management and AML Risk—relieves the Compliance Officers from most of the day-to-day burden of keeping up with regulatory requirements and ensures staff have access to compliance and risk advice when they need it.
• Due Diligence & Risk Assessment Service – At the Regulation and Compliance Office (RACO), we provide law firms with a seamless, outsourced solution for Client Due Diligence (CDD) and Risk Assessments. Our Due Diligence and Risk Assessment Service has been designed to enable law firms to focus on the provision of the legal services while we collate the necessary documentation for Due Diligence, Enhanced Due Diligence (where needed), and completion of the Client and Matter Risk Assessment which must be completed on all matters in scope of the Money laundering Regulations 2017.
• AML Training Courses – Our Typical AML Training Includes:
  • AML Training for ALL staff to meet the firm’s obligation to provide annual training.
  • One-to-one training for the MLRO and MLCO on their obligations and requirements.

Regulation & Compliance Office – Reach Out Now

To ask any questions about the Regulation & Compliance Office and how we can support your Law Firm, please call us on 0203 985 8550 or email us at info@regulationandcomplianceoffice.co.uk