Tranche 2 AML/CTF Compliance for Australian Professional Services Firms

Tranche 2 refers to the second phase of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regulatory reforms, extending regulations to designated non-financial businesses and professions (DNFBPs). This includes lawyers, accountants, real estate agents, and trust and company service providers. The goal is to align Australia with international standards, close regulatory gaps, and combat financial crime more effectively.

 The AML/CTF Amendment Act introduces regulatory obligations for new 'designated services', so any entities providing such a service with a geographical connection to Australia will be subject to the AML/CTF Act.

These changes are summarised under the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (the Amendment Act). This legislation reforms Australia's Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act)

Many of the changes related to AML/CTF program requirements, customer due diligence (CDD) requirements, and value transfer obligations come into effect on March 31, 2026.

The reforms move the focus from a traditional compliance-based approach to a risk-based, outcomes-oriented approach. This means reporting entities must now follow an outcomes-based framework, tailoring their AML/CTF controls based on the specific risks posed by their customers. This ensures that resources are allocated more effectively to mitigate potential money laundering (ML) and terrorism financing (TF) risks.

Major updates shift the focus to effective, tailored AML/CTF measures. Key changes include:

• Risk Assessment: Reporting entities must now identify and assess risks related to ML, TF, and proliferation financing (PF).

• Flexibility: The previous requirement to separate the AML/CTF program into Part A and Part B is repealed, allowing organizations to structure their program based on their needs, as long as it meets the requirements of the AML/CTF Act and Rules.

• Leadership Responsibility: The new framework emphasizes the explicit role of governing bodies and senior management in overseeing ML/TF/PF risk and ensuring compliance.

• Compliance Officer: It is now an explicit requirement to appoint a fit and proper AML/CTF compliance officer responsible for implementing the program.

The changes aim for a more targeted and flexible approach to mitigating risks, particularly those associated with higher-risk customers and transactions. CDD is separated into two categories based on timing:

• Initial CDD: Required before providing a designated service, this involves identifying the customer’s ML/TF/PF risk profile, completing screening for targeted financial sanctions, and establishing if the customer is a politically exposed person (PEP).

• Ongoing CDD: Requires monitoring and managing ML/TF/PF risks throughout the customer relationship, which includes monitoring for suspicious activity and updating the customer's risk profile as triggers arise.

Yes, the level of checks applied depends on the risk profile:

• Simplified CDD: May be applied when the ML/TF/PF risk is assessed as low and no enhanced CDD triggers apply, which helps reduce the compliance burden for low-risk customers.

• Enhanced CDD: Must be applied when the ML/TF/PF risk is high or in specified circumstances, such as when dealing with a foreign PEP or when a suspicious matter reporting obligation arises

The new laws introduce changes related to value transfer services, which collectively cover electronic funds transfer instructions and designated remittance arrangements, and importantly, now explicitly apply to the transfer of virtual assets.

New Reporting: International Value Transfer Service (IVTS) reporting will replace the current international funds transfer instruction (IFTI) reports. IVTS reporting applies to transfers of money, virtual assets, or other property.

• Reporting Obligation: The reporting obligation will now lie with the reporting entity closest to the Australian customer.

• Virtual Asset Wallets: There is a new reporting obligation for transfer activity to or from unverified self-hosted virtual asset wallets

• New Reporting:International Value Transfer Service (IVTS) reporting will replace the current international funds transfer instruction (IFTI) reports. IVTS reporting applies to transfers of money, virtual assets, or other property

Yes. The initial CDD requirements and the new obligations in the AML/CTF Act are directly subject to civil penalty provisions. This means that failing to identify and verify a customer's identity before providing a designated service, for example, now carries a direct civil penalty. This increases the regulatory risk of non-compliance