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Risk Reforms in Australia: Stronger Compliance and Tranche 2 Changes

Australia is on the cusp of the most significant shake-up of its anti-money laundering and counter-terrorism financing (AML/CTF) regime in over a decade. With its new AML/CTF Rules 2025 commencing 31 March 2026, financial institutions must prepare for a more outcomes-based, risk-focused compliance framework. These new rules are set to reshape customer due diligence (CDD) and transaction monitoring obligations in Australia.  

Shortly after, from 1 July 2026, AML/CFT obligations will start to also apply to certain entities known as ‘tranche 2’ entities, expanding the scope of Australia’s anti-financial crime regime. 

 

Customer Due Diligence to Become Stronger 

The reforms set out clearer and more structured requirements for initial, ongoing, and enhanced CDD processes. Institutions will now face stricter expectations around beneficial ownership, requiring the identification and verification of beneficial owners and senior managers across corporates, partnerships, trusts, and associations.  

Changes to ongoing due diligence under the new legislation include requirements to actively monitor customer transactions and behaviours against expected activity. As part of everyday AML programs, the nature, purpose, and source of wealth or funds will need to be proactively tracked. The reforms also expand CDD triggers to include a wide range of activities, including virtual asset services and unusual service requests.  

 

Moving to a Flexible, Risk-Based Approach 

Additional measures bring greater clarity to dealings with Politically Exposed Persons (PEPs), including defined requirements for both initial and ongoing monitoring of domestic and foreign PEPs, as well as the need for senior management approval before proceeding with PEPs. The reforms also introduce obligations for customers transferring between institutions or services, and for cases involving intermediary or nested service providers.  

An Explanatory Statement highlights that these changes are designed to align Australia with international standards set by the Financial Action Taskforce (FATF). The changes also address past criticism of “complex but ineffective” rules by moving towards a simplified, risk-based approach that strengthens compliance while also allowing greater flexibility. 

 

Embedding Risk Awareness in Transaction Monitoring 

The 2025 rules mark a significant shift in how financial institutions approach transaction monitoring, embedding it firmly within the ongoing CDD framework. Rule 6-35 explicitly requires monitoring for unusual transactions and behaviours, while new obligations enhance transparency in domestic and international value transfers in line with the FATF’s “travel rule.” 

The reforms also strengthen Suspicious Matter Reporting (SMR) requirements, aligning them more closely with Australia’s Transaction Reports and Analysis Centre’s (AUSTRAC) intelligence priorities. The changes aim to make transaction monitoring an integral part of risk scoring, CDD, and governance, ensuring it operates as a proactive, intelligence-driven compliance function rather than a siloed process. 

 

Why This Matters 

These reforms are not just incremental changes to rules for banks and financial services providers. They represent “Tranche 2” of Australia’s AML/CTF expansion, finally bringing lawyers, accountants, real estate agents, and dealers in precious metals into the regulated population alongside banks and remitters.  

For financial institutions, this means: 

  • More counterparties will be conducting CDD, raising expectations for interoperability of KYC data 
  • AUSTRAC will expect smarter transaction monitoring, blending automated alerts with contextual risk analysis 
  • Board and senior management accountability will be sharpened, with clearer obligations for compliance officer oversight 

Key Actions Financial Institutions Must Take Next 

To prepare for the incoming rule changes, financial institutions and ‘tranche 2’ entities should look to: 

  • Review and update CDD workflows to capture new beneficial ownership, PEP, and nested service requirements 
  • Align transaction monitoring rules with customer risk assessments and value transfer transparency obligations 
  • Train staff on risk-based CDD and TM integration, moving away from “tick-box” compliance 
  • Engage with AUSTRAC and industry working groups to benchmark interpretation and implementation timelines 

 

Explore Fenergo’s solutions for CDD and transaction monitoring or contact us to book a demo.