Australia’s AML/CTF Reforms: A New Era in Financial Crime Prevention

Australia’s AML/CTF Reforms: A New Era in Financial Crime Prevention

Australia is entering a transformative phase in its response against financial crime, with the most significant changes to its anti-money laundering and counter-terrorism financing (AML/CTF) laws in nearly two decades. On 31 August 2025, Australia’s AML/CTF regulator and financial intelligence unit the Australian Transaction Reports and Analysis Centre (AUSTRAC) tabled the Anti-Money Laundering and Counter-Terrorism Financing Rules 2025 (Cth) (Rules) in Parliament. The Rules which follow amendments to Australia’s AML/CTF Act (Act), which were passed by Parliament in November 2024. The Act and Rules mark a critical step in modernising the regulatory framework and expanding its reach to new sectors.

The amended Act and Rules provide a framework for both existing reporting entities, such as financial institutions, asset managers and payment providers, and new entities under ‘Tranche 2’, including lawyers, accountants, and real estate agents. These changes are designed to enhance transparency, improve compliance, and align Australia’s AML/CTF regime with international standards required by the Financial Action Task Force (FATF).

Implementation timeline

The compliance deadlines are fast approaching. Existing reporting entities must implement the new Rules by 31 March 2026, while Tranche 2 entities have until 1 July 2026. However, enrolment with AUSTRAC for Tranche 2 entities can begin from 31 March 2026.

With an estimated 80,000-90,000 new reporting entities entering the AML/CTF regime, the demand for training, technology, and specialist expertise is expected to continue to increase. AUSTRAC has encouraged all entities to develop implementation plans early to ensure readiness.

Key changes to the AML/CTF rules

AUSTRAC’s most recent public consultation process on the Rules received 229 submissions. We have identified five particular areas of note:

1. Reporting Groups

Entities within a business group must now agree in writing on a lead reporting entity. Under Rule 2-1, all members of a business group must designate a lead entity. Rule 2-2 further stipulates that if one member joins or leaves a reporting group, all members are deemed to have done the same. This change promotes clarity and accountability in group reporting structures.

2. Customer Due Diligence (CDD)

Part 6 of the Rules introduces more prescriptive CDD obligations. These are tailored to different customer types, including:

• Sole traders (Rule 6-1)
• Corporations, partnerships, and unincorporated associations (Rule 6-2)
• Trusts and foreign equivalents (Rule 6-3)
• Government bodies (Rule 6-4)

Additional rules address the identification of persons associated with the customer (Rule 6-5), beneficial owners (Rule 6-7) and senior managers (Rule 6-8).

One notable revision is the narrowed definition of domestic politically exposed persons (PEPs) compared to earlier drafts of the Rules. Rule 1-5(j) now limits this to the head of a local government council, excluding councillors generally. This change narrows the earlier exposure draft of the Rules which included all council members as domestic PEPs.

3. AML/CTF Programs and Governance

The Act and Rules place a strong emphasis on governance and oversight. Entities must ensure their AML/CTF programs are robust, regularly reviewed, and embedded across operations. Boards and senior management are expected to play an active role in overseeing compliance. Key governance and oversight questions include:

• Should multiple entities form a reporting group? 
• Who approves the AML/CTF policies and procedures as well as the risk assessment?
• Who will undertake the role of Senior Management?
• Who should undertake the role of the AML/CTF Compliance Officer?

These decisions will shape how entities manage risk and demonstrate accountability.

4. Value Transfer and the Travel Rule

Part 8 of the Rules introduces detailed requirements for value transfers, aligning with FATF Recommendations 15 and 16. These rules mandate that information about both the payer and payee must accompany transfers, whether traditional or involving virtual assets.

Given the complexity of these changes, entities may need phased implementation plans if system upgrades cannot be completed by the March 2026 deadline.

5. International Sanctions

Rule 5-3 requires reporting entities to develop and maintain AML/CTF policies to ensure that in providing their designated services they do not contravene targeted financial sanctions, including asset freezing obligations, required by the Autonomous Sanctions Act 2011 (Cth) or the Charter of the United Nations Act 1945 (Cth). This Rule complements the requirement in the Act to establish whether a customer, any beneficial owner of a customer, any beneficiary or any agent, is a person designated for targeted financial sanctions. Relevantly in making this assessment, Rule 5-3 now refers to “any assets” instead of “money, property or virtual assets”.

Preparing for compliance

To meet the new requirements reporting entities in Australia should:

• Draft or update their money laundering and terrorism financing risk assessment.
• Conduct an assessment of current AML/CTF policies and procedures, systems and processes in comparison to the new requirements.
• Review and assess the recently released AUSTRAC guidance.
• Engage with the Board and Senior Management to ensure their awareness of the changes as well as associated oversight.
• Seek external advice if the obligations or the implementation is unclear.

For reporting entities, the key challenge in navigating the transition effectively, balancing regulatory compliance with operational readiness, given the breadth and depth of change.