Security – LmCompatibilityLevel to be applied to client, domain controller or both

active-directorydomain-controllerntlmSecuritywindows-server-2012

I'd like to apply LmCompatibilityLevel = 5 to my domain but I am not sure if this is to be applied to all clients (via GPO), domain controllers only or to both. I am a little confused as the TechNet description states that this option is to have the Domain controller refuse certain authentication responses.

From TechNet:

Clients use only NTLMv2 authentication, and they use NTLMv2 session security if the server supports it. Domain controller refuses LM and NTLM authentication responses, but it accepts NTLMv2.

Best Answer

Typically the same value is configured on all Windows computers. The objective is to prevent any and all usages of NTLM1 due to the severity of the security risk. If a client transmits an NTLM1 hash over the network, it may be intercepted and easily cracked compared to NTLM2, depending on the length/complexity of the password. This is a common tactic used by attackers in man-in-the-middle attacks during the recon phase of an incursion. So you don't want NTLM1 anywhere in your environment.

The setting behaves differently depending if the computer is performing a client or server function. Any Windows computer (workstation, member server, or domain controller) can perform both.

Highly recommended to have a backout planned as a contingency. Assessing NTLM1 usage and impact is notoriously difficult, especially if you have a large, heterogeneous environment with a lot of crusty old legacy systems.

The Most Misunderstood Windows Security Setting of All Time
https://technet.microsoft.com/en-us/library/2006.08.securitywatch.aspx