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Tranche 2: What you need to know

Tranche 2: What you need to know

Modernising Australia's Anti Money Laundering and Counter Terrorism Financing (AML/CTF) Regime
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Enhancing and Strengthening Australia's AML/CTF Regime

Australia is committed to safeguarding the integrity of its financial system and countering the threats posed by money laundering and terrorism financing. To ensure a robust and responsive Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime, the Australian Government has initiated a public consultation on the proposed reforms.

These reforms aim to simplify and modernise the regime's operations. They extend coverage to high-risk professions, including lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones - collectively referred to as Tranche 2 entities.

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Dates to Remember

The reforms will go into effect on March 31, 2026, including the replacement of Part 7 of the AML/CTF Act with a more outcomes-oriented approach to risk alleviation and management for reporting entities.

New Customer Due Diligence (CDD) criteria will be implemented, as well as increased coverage of the AML/CTF regime for high-risk service providers such as real estate agents and virtual asset service providers. Key revisions include new legislation on tipping-off violations and electronic financial transfer reporting, which modernise the framework to meet global standards.

Finally, by July 1, 2026, more clarifications will be provided respecting legal professional privilege in reporting obligations and the treatment of bearer negotiable instruments. A transitional time is allowed for new reporting entities, allowing them to prepare for compliance with the enhanced AML/CTF regulations before the deadlines.

Proposed Reforms

Part 1 - Simplifying and Modernising the AML/CTF Regime

The first part of the proposed reforms focuses on simplifying and modernising the operation of the AML/CTF regime. The need for streamlining obligations has long been recognised by the industry and was recommended by the 2016 Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act). The review highlighted that the current regime is overly complex, making it difficult for regulated entities, especially small businesses, to understand and comply with their obligations.

One of the major concerns identified in the review was the complexity of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (the Rules). The scale, structure, and density of the Rules have rendered them hard to follow and largely inaccessible for many businesses. Consequently, there is a pressing need to simplify both the Act and the Rules, streamlining AML/CTF obligations to ensure clarity and ease of compliance

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Part 2 - Extending the AML/CTF Regime to Tranche 2 Entities

The second part of the proposed reforms aims to address the regulatory gap by extending the AML/CTF regime to Tranche 2 entities. Currently, Australia is one of only five jurisdictions in the FATF Global Network, alongside China, Haiti, Madagascar, and the United States, that do not regulate these high-risk professions. This regulatory gap creates vulnerabilities that can be exploited by criminals for money laundering and terrorism financing purposes.

By including lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones within the scope of the AML/CTF regime, Australia aims to enhance the effectiveness of its Anti-Money Laundering and Counter-Terrorism Financing efforts. These professions often handle significant financial transactions and have the potential to be unwittingly involved in facilitating illicit activities. Extending the regime to Tranche 2 entities will ensure a comprehensive approach to combating money laundering and terrorism financing across various sectors.

Effects of Tranche 2 Reforms on Regulated Entities

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Benefits and Challenges for Tranche 2 Entities

The inclusion of Tranche 2 entities within the AML/CTF regime presents both benefits and challenges for these professions. While adhering to AML/CTF regulations will boost the legitimacy and integrity of these industries, inspiring trust in customers and investors. It will indicate a commitment to combating financial crime and increasing trust in the financial system as a whole

However, compliance with AML/CTF obligations may impose certain burdens on Tranche 2 entities. These obligations may require additional resources, including employee training, technological upgrades, and the implementation of robust internal controls. However, the long-term benefits of a strengthened AML/CTF regime, such as mitigating reputational risks and minimising exposure to illicit activities, outweigh the short-term challenges

Benefits and Challenges for Tranche 2 Entities

The inclusion of Tranche 2 entities within the AML/CTF regime presents both benefits and challenges for these professions. While adhering to AML/CTF regulations will boost the legitimacy and integrity of these industries, inspiring trust in customers and investors. It will indicate a commitment to combating financial crime and increasing trust in the financial system as a whole

However, compliance with AML/CTF obligations may impose certain burdens on Tranche 2 entities. These obligations may require additional resources, including employee training, technological upgrades, and the implementation of robust internal controls. However, the long-term benefits of a strengthened AML/CTF regime, such as mitigating reputational risks and minimising exposure to illicit activities, outweigh the short-term challenges

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Conclusion

The proposed reforms to Australia's AML/CTF regime aim to simplify and modernise its operation while extending its coverage to Tranche 2 entities. By streamlining obligations and including high-risk professions, the Australian Government seeks to strengthen its efforts in combating money laundering and terrorism financing. The consultation process provides an opportunity for industry stakeholders to contribute their expertise and shape the development of a robust AML/CTF framework that aligns with international standards and best practices. Together, government and industry can work towards a safer and more resilient financial system that protects the integrity of Australia's economy and communities.