AUSTRAC’s Tranche 2 Reforms: Your Urgent Call to Action (Feedback Deadline: June 27th!)

1. Introduction: Why Tranche 2 Matters to Accounting Practices

Australia’s financial integrity framework is undergoing a significant transformation with the upcoming ‘Tranche 2’ reforms to the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act. These changes are not merely incremental adjustments but represent a fundamental expansion of regulatory oversight, directly impacting a range of professional service providers, including accounting firms. Understanding and proactively preparing for these reforms is not just a matter of compliance but a strategic imperative for safeguarding a practice’s reputation, financial stability, and long-term viability.

AUSTRAC is currently seeking feedback on the updated draft AML/CTF Rules, and this is a crucial opportunity for your voice to be heard. The deadline for submitting your response is June 27th. Your input can help shape the final rules, ensuring they are practical and effective for the accounting profession.

The evolving regulatory landscape is driven by a critical need to strengthen Australia’s defenses against modern financial crime. The reforms are essential to deter, detect, and disrupt money laundering, terrorism financing, and proliferation financing (ML/TF/PF), ensuring the nation aligns with and upholds international standards set by the Financial Action Task Force (FATF). The global financial crime landscape is dynamic, with illicit actors constantly developing new methods and technologies. Australia’s reforms are a direct and necessary response to this evolving threat, ensuring the country maintains a robust framework compliant with international best practices.  

For the first time, specific accounting services are now explicitly categorized as “designated services” under the expanded AML/CTF Act. This reclassification brings accounting firms directly under the regulatory oversight of AUSTRAC, Australia’s financial intelligence agency. Historically, AML/CTF obligations primarily fell upon traditional financial institutions. The inclusion of professional service providers like accountants acknowledges their critical role in facilitating financial activities and their potential exposure to ML/TF/PF risks. This positions accounting firms as vital gatekeepers in the financial system, playing a crucial role in preventing criminal exploitation.  

The stakes associated with these reforms are substantial. Non-compliance carries severe implications, including significant financial penalties, profound reputational damage, and potential legal repercussions. Proactive compliance, therefore, transcends a mere regulatory burden; it is a strategic imperative for ensuring business continuity, maintaining client trust, and upholding the integrity of the accounting profession.

2. Understanding the New Landscape: AUSTRAC’s AML/CTF Reforms

This section delves into the specifics of the upcoming reforms, outlining their background, key objectives, and the core obligations that accounting practices must now adhere to.

2.1 Background and Objectives of the Reforms: Why Now?

The fundamental driver behind these reforms is the imperative to effectively deter, detect, and disrupt ML/TF/PF. A central objective is to ensure Australia meets and maintains its commitments to international standards established by the Financial Action Task Force (FATF). Without these reforms, Australia’s AML/CTF regime would become increasingly ineffective, leading to significant costs of inaction for the economy and national security.  

The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024, passed on November 29, 2024, outlines three key objectives:

• Expansion of the AML/CTF Regime: The Act extends the AML/CTF regime to additional high-risk services provided by Tranche 2 entities. This explicitly includes professional service providers such as accountants, lawyers, conveyancers, and trust and company service providers. These services are globally and domestically recognized as high-risk for money laundering exploitation.  
• Modernization of Regulation: The reforms aim to update and strengthen the regulation of digital currency and emerging virtual asset and payments technology. This ensures the regime remains relevant and effective in a rapidly evolving financial landscape.  
• Simplification and Clarification: A core objective is to increase flexibility within the AML/CTF regime, reduce unnecessary regulatory impacts on businesses, and provide clearer guidance to support businesses in better preventing and detecting financial crime.  

These reforms were developed through extensive consultations with affected sectors and national security agencies, involving over 270 submissions and more than 100 stakeholder meetings between April 2023 and June 2024. This collaborative effort underscores the commitment to crafting practical and effective legislation. The consistent emphasis across official documents on meeting FATF international standards and deterring financial crime reveals that these reforms are not merely domestic policy changes but are integral to Australia’s standing in the global financial ecosystem. For accounting professionals, understanding this broader context means their compliance efforts directly contribute to national and international security. This perspective elevates AML/CTF from a perceived regulatory burden to a shared responsibility in combating serious transnational crime, fostering a culture of vigilance and integrity across the practice. A strong national AML/CTF regime enhances Australia’s reputation as a secure and trustworthy place to conduct business, potentially attracting legitimate foreign investment while simultaneously deterring illicit funds. Accountants, by adhering to these new standards, act as crucial gatekeepers, playing a vital role in maintaining this national financial integrity and stability.  

2.2 Accountants as Reporting Entities: What This Means for Practices

The definition of “reporting entities” has been expanded to explicitly include professional service providers like accountants, bringing them directly under AUSTRAC’s regulatory framework. While the specific designated accounting services are not detailed in the provided information, the general inclusion of accountants implies that services involving financial transactions, client funds management, company formation, and certain advisory roles will likely fall under the new regime.  

A critical clarification within the new laws pertains to Legal Professional Privilege (LPP). Explicit protections for LPP ensure that accountants handling privileged information can comply with their AML/CTF obligations without breaching the common law doctrine of LPP. This is a crucial point, particularly for accounting firms that collaborate closely with legal teams or handle sensitive client information that might be subject to privilege. AUSTRAC has taken deliberate steps to ensure that compliance with AML/CTF obligations does not inadvertently force a breach of this fundamental legal principle, providing clarity and confidence for practitioners.  

2.3 Key Obligations: New Responsibilities for Accounting Practices

Accounting practices now face several key obligations under the expanded AML/CTF regime. These responsibilities are designed to create a robust defense against financial crime.

Table 1: Key AUSTRAC Tranche 2 Obligations for Accountants

Detailed Explanation of Each Obligation:

• Enrol and Register with AUSTRAC: All newly regulated reporting entities, including accounting firms, are mandated to enrol with AUSTRAC. Enrolment for professional service providers will be available from March 31, 2026, with a deadline of July 29, 2026.  
• Develop and Maintain an AML/CTF Program: This is no longer a mere ‘check-box’ exercise. Programs must be dynamic, tailored to the firm’s specific risks, and focus on identifying, assessing, and effectively mitigating ML/TF/PF risks. The revised AML/CTF program obligation includes an overarching risk assessment, proportionate risk mitigation measures, and clearly defined roles and responsibilities for the governing body and the AML/CTF compliance officer. The explicit move from a ‘check-box’ approach to a risk-based AML/CTF program signifies a profound change in how accounting firms must approach compliance. It demands more than just documentation; it requires a genuine, ongoing understanding and management of financial crime risks. This necessitates a significant investment in internal training, a deep understanding of client risk profiles, and continuous monitoring of risk indicators. It fosters a proactive, rather than merely reactive, approach to compliance, embedding AML/CTF considerations into the firm’s core operational processes and culture. This represents a substantial cultural and procedural shift for many accounting practices. The new simplified ‘reporting group’ concept offers flexibility for related entities within a firm or group to share risk management and compliance arrangements under a single lead entity.  
• Conduct Customer Due Diligence (CDD): Reporting entities are required to identify and verify the identity of their customers and associated persons, understand the ML/TF/PF risks associated with providing services to them, and take appropriate steps to mitigate these risks. This includes both initial verification performed at the commencement of a business relationship and continuous monitoring and review that constitutes ongoing CDD. A crucial relief measure for accounting firms is the deferred CDD for pre-commencement customers. Firms will generally not be required to perform initial or ongoing CDD on existing clients (those onboarded before the commencement date) until a Suspicious Matter Report (SMR) is required for that customer, or there is a significant change in the nature or purpose of the business relationship that elevates the client’s ML/TF/PF risk to medium or high. This pragmatic measure by AUSTRAC is designed to ease the transition for newly regulated entities, allowing them to prioritize new client onboarding and higher-risk existing relationships during the initial implementation phase. The Act also clarifies when enhanced CDD must be applied (typically for higher-risk customers or transactions) and streamlines circumstances when simplified CDD may be applied for lower-risk scenarios. Furthermore, a new mechanism, ‘Keep Open Notices’, allows law enforcement agencies to issue notices directly to reporting entities, permitting them to defer certain CDD actions if undertaking them could alert a customer to a criminal investigation.  
• Report Certain Transactions and Suspicious Activities: New requirements have been introduced for reportable details for both Threshold Transaction Reports (TTRs) and Suspicious Matter Reports (SMRs). Additionally, International Value Transfer Service (IVTS) reporting will replace the current International Funds Transfer Instruction (IFTI) reports. The reporting obligation will now lie with the reporting entity closest to the Australian customer, aiming to improve the tracking of international transfers of value.  
• Make and Keep Records: Firms must maintain comprehensive records related to their AML/CTF program, all customer due diligence activities, transaction records, staff training sessions, and audit results.  

2.4 Important Dates: When to Act

The new AML/CTF laws for professional service providers like accountants will commence on July 1, 2026. Accounting firms must enrol with AUSTRAC by July 29, 2026, with enrolment becoming available from March 31, 2026. AUSTRAC is scheduled to finalise the changes to the AML/CTF Rules and publish them in August 2025.  

While the commencement date for obligations is July 1, 2026, the fact that enrolment opens much earlier (March 31, 2026) and the rules are finalized nearly a year in advance (August 2025) provides a significant window for preparation. This pattern suggests AUSTRAC’s intent to allow ample time for transition. Accounting firms that delay their preparation until the last minute will likely face a rushed, stressful, and potentially more costly implementation process. Proactive preparation, including thoroughly understanding the finalized rules, assessing current internal systems, and identifying suitable technological solutions, is crucial. This strategic lead-time allows for a smoother transition, better integration of compliance measures into existing workflows, and minimizes disruption. Proactive and early preparation directly reduces the stress and complexity of compliance implementation, improves the quality and effectiveness of AML/CTF programs, and potentially lowers the overall financial and operational costs associated with compliance. Conversely, reactive, last-minute efforts significantly increase the risk of non-compliance, operational inefficiencies, and potential penalties.

3. Conclusion: Proactive Steps for a Compliant and Efficient Future

The upcoming AUSTRAC Tranche 2 reforms represent a significant, yet manageable, shift for the accounting profession. This period should be viewed not as a mere regulatory burden, but as a critical opportunity to modernize practices, enhance operational resilience, and strengthen defenses against financial crime.

Proactive preparation is key. The lead-time provided by the commencement dates (July 1, 2026) and the upcoming finalization of the rules (August 2025) offers a crucial window for accounting firms to prepare effectively. Initiating preparations early minimizes disruption, ensures a smoother transition, and allows for the thoughtful integration of compliance measures into existing workflows.

AUSTRAC is currently holding a second round of public consultation on the new draft AML/CTF Rules. This is your chance to provide feedback and influence the final shape of these important regulations. The deadline for submissions is June 27th. We strongly encourage all accounting firms to review the draft rules and submit their comments. Your engagement is vital to ensure the new rules are practical and effective for our industry.

Leveraging technology, such as digital identity verification solutions, can be an essential component of this strategic approach. These tools can help transform compliance from a burden into a strategic advantage, offering a powerful way to enhance operational efficiency, significantly improve data security, and strengthen overall risk management within an accounting practice.

Ultimately, accounting firms are encouraged to view compliance not as a reactive obligation, but as an opportunity to elevate their client service, fortify their data security posture, and reinforce their reputation for integrity and professionalism. Engaging with the current consultation process and initiating or accelerating your Tranche 2 compliance journey are crucial next steps for any accounting practice committed to a compliant and efficient future.

Appendix: ‘identitycheck’ Solution Overview

The ‘identitycheck’ service offers a robust solution that not only addresses the new AML/CTF obligations but also delivers broader operational benefits.

Meeting AML/CTF Obligations Effortlessly

‘identitycheck’ directly addresses the core Customer Due Diligence (CDD) requirements by automating the identity verification process, which is fundamental to robust AML/CTF compliance.

• Exceptional Speed and Efficiency: Automated checks are completed in approximately 30 seconds, a dramatic improvement compared to manual processes which can take 1-4 hours. This significantly accelerates client onboarding and ongoing monitoring processes.  
• Unparalleled Accuracy: The automated process boasts a significantly lower error rate (<0.01%) compared to manual methods (1-4% errors). It achieves a high completion rate on the first try (95%) by analyzing over 1,000 data points, ensuring high data integrity for compliance records.  
• Comprehensive Screening: Beyond basic identity verification, ‘identitycheck’ includes integrated Politically Exposed Person (PEP) screening, Sanctions screening, and Adverse Media screening. This provides a holistic view of client risk, which is crucial for the new risk-based approach to AML/CTF programs.  
• Extensive Global Coverage: For practices with international clients, the service can verify identities in over 230 countries, supports more than 45 languages, and can read and verify over 10,000 government-issued identity documents from more than 200 countries.  

The new CDD requirements are central to Tranche 2. ‘identitycheck’s features directly address the need for accurate, timely, and comprehensive identity verification, which forms the fundamental basis of robust CDD. Furthermore, ‘identitycheck’ provides critical data and efficiencies that directly support the development and maintenance of a robust, risk-based AML/CTF program. The comprehensive screening capabilities (PEP, Sanctions, Adverse Media) provide rich, verifiable data points, enabling accounting firms to conduct more thorough and accurate risk assessments for their clients, aligning perfectly with the new risk-based program requirement. Automated processes inherently generate digital, auditable records of all identity verification activities, significantly simplifying the record-keeping obligation and ensuring compliance. Notably, ‘identitycheck’ is specifically designed to provide direct support for Tranche 2 compliance, ensuring firms meet their legal obligations effectively.  

Beyond Compliance: Solving Operational Challenges

‘identitycheck’ transforms the traditional, cumbersome manual processes into a seamless, automated workflow, offering significant operational advantages beyond mere compliance.

• Eliminating Manual Data Entry & Associated Inefficiencies:
  • Significant Cost Savings: Automated checks are presented as a highly cost-effective solution, costing $5 or less per check, which is approximately 10 times less than traditional manual processes.  
  • Drastic Time Savings: By reducing verification time from hours to seconds, ‘identitycheck’ drastically cuts down the time spent on client onboarding and verification, freeing up staff for higher-value tasks.  
  • Seamless System Integration: ‘identitycheck’ offers effortless integration with existing CRM and other software platforms (e.g., HubSpot, as highlighted by customer testimonials), eliminating the need for separate systems and cumbersome manual data transfer.  
  • Frictionless Experience: The service is designed to provide a smooth, easy, and frictionless experience for both the accounting firm’s staff and its clients undergoing identity verification.  
• Ensuring Robust Data Integrity:
  • Superior Accuracy: By automating the verification process, ‘identitycheck’ significantly reduces the potential for human error inherent in manual methods, ensuring higher data integrity for client records and compliance audits.  
  • Robust Document Validation: The system’s ability to read and verify over 10,000 government-issued identity documents from more than 200 countries contributes to highly robust data validation, minimizing risks associated with fraudulent documents.  

Enhanced Privacy and Security: Protecting Client Data

With the expanded scope of Tranche 2, accounting firms will collect and process more sensitive client data. ‘identitycheck’ provides robust privacy and security features crucial for protecting this information.

• Low Risk Profile: Automated processes are inherently categorized as “low risk” in terms of security and privacy, contrasting sharply with the “high risk” associated with manual methods, which are prone to human error and data mishandling.  
• Private and Secure by Design: ‘identitycheck’ is built with privacy and security at its core, enabled by its seamless integration with your existing systems. This ensures that sensitive data is held precisely where it needs to be, and access to personal information is naturally limited through pre-built and designed access controls, enhancing overall data governance.  
• Biometric Authentication: KYC verification leverages biometric information to confirm user identity, significantly mitigating fraudulent activities such as account takeover and identity theft, adding a strong layer of user authentication.  
• Advanced Device and Network Fingerprinting: Over 1,000 data points are analyzed through device and network fingerprinting solutions to enhance security during the verification process, adding an additional layer of fraud prevention.  
• Bring Your Own Key (BYOK): This feature provides businesses with greater choice and control over their preferred identity verification and risk-based approach. It offers an alternative to our out-of-the-box solution, which may be particularly relevant for accounting businesses with complex operating requirements or those wishing to implement additional security measures beyond standard protocols.  

Key Benefits: A Summary of Why ‘identitycheck’ is a Partner in Compliance

Table 2: How ‘identitycheck’ Addresses Tranche 2 Compliance & Operational Challenges

Export to Sheets

This table serves as a compelling, at-a-glance value proposition by directly linking the new AUSTRAC obligations and common accounting practice pain points to the specific features and benefits of ‘identitycheck’. It clearly demonstrates how the service provides a holistic solution. Accounting professionals need to see a clear and tangible return on investment for any new technology or service adoption. By explicitly mapping specific regulatory requirements and prevalent operational challenges to ‘identitycheck’s features and the resulting benefits, this table visually and concisely demonstrates how the service addresses multiple pain points simultaneously. This makes the business case for adoption explicit and easy to understand.

References and Further Resources

• AUSTRAC’s AML/CTF Reform Page: https://www.austrac.gov.au/about-us/amlctf-reform  
• AUSTRAC’s Summary of AML/CTF obligations for Tranche 2 entities: https://www.austrac.gov.au/about-us/amlctf-reform/summary-amlctf-obligations-tranche-2-entities  
• Attorney-General’s Department – Overview of the AML/CTF Amendment Act: https://www.ag.gov.au/crime/anti-money-laundering-and-counter-terrorism-financing/anti-money-laundering-and-counter-terrorism-financing-amendment-act/overview-amlctf-amendment-act  
• AUSTRAC’s Second Public Consultation on New AML/CTF Rules: https://www.austrac.gov.au/business/consultation-industry/second-public-consultation-new-amlctf-rules  
• ‘identitycheck’ Service Page: https://stackgo.io/identitycheck