Category: AML

Tranche 2 will significantly expand Australia’s anti‑money‑laundering and counter‑terrorism financing (AML/CTF) regime. For the first time, sectors such as law, accounting, real estate and high‑value goods dealing will fall within the same framework that currently applies to banks and other financial institutions. AUSTRAC regulates just under 18,000 businesses today, but the reforms will bring that number to roughly 100,000. Regulators will not offer much leeway when enforcement begins in July 2026, so early preparation is essential.

What is Tranche 2?

Tranche 2 extends AML/CTF obligations to high‑risk designated services. If your business is a law firm, accounting practice, real‑estate agency, trust or company service provider, dealer in precious metals or stones, or a virtual‑asset service provider, you will need to:

• Verify client identities – collect and verify reliable KYC information about clients and beneficial owners. Enhanced due diligence must be applied for high‑risk or politically exposed persons (PEPs).
  
  
• Monitor transactions and relationships – perform ongoing due diligence and risk‑based monitoring throughout the business relationship.
  
  
• File suspicious matter reports (SMRs) – SMRs must be submitted within 24 hours for terrorism‑financing suspicions and within 3 business days for other suspicions, such as money‑laundering. Disclosing that an SMR has been lodged may amount to “tipping off”, which is a criminal offence carrying up to two years’ imprisonment or 120 penalty units.
  
  
• Update risk assessments and train staff – your AML/CTF program must include a documented risk assessment and a risk‑awareness training program.
  

Tranche 2 entities may enrol with AUSTRAC from 31 March 2026 and must comply with the new obligations from 1 July 2026

Key changes under Tranche 2

Who needs to pay attention?

• Law firms handling property transfers, client funds or complex corporate structures
  
• Accounting firms managing client monies or offshore structures
  
• Real‑estate agencies facilitating high‑value property sales
  
• High‑value goods dealers handling luxury items, precious metals or stones
  

Even if you have only minimal AML obligations today, a basic policy will not suffice. Regulators expect documented procedures, up‑to‑date risk assessments and trained personnel.

Common Tranche 2 AML/CTF weak spots

Many existing AML programs fall short because they rely on static policies. Frequent issues include:

• Outdated risk assessments that ignore new threats
  
• Weak customer due diligence or beneficial‑owner checks
  
• Poor record‑keeping; the law requires AML/CTF records to be kept for at least seven years
  
• Untrained staff who do not know how to recognise or report red flags
  
  

Regulators have already penalised firms for failing to verify sources of funds, missing PEPs and failing to submit SMRs. Policies alone are not enough – you need practical processes, training and proof that your controls work.

Tranche 2 AML/CTF checklist for readiness

How to read your score

• Low risk: You’re on the right track; continue reviewing.
  
  
• Medium risk: Progressing, but gaps remain.
  
  
• High risk: Immediate action is required, don’t wait.
  
  

Closing the gaps

If your score was below low risk, prioritise the following actions:

• Update your policies to reflect new identity‑verification, transaction‑monitoring and reporting requirements.
  
• Strengthen due diligence; ensure beneficial‑ownership and PEP checks meet enhanced requirements
  
• Provide sector‑specific training to staff.
  
• Implement technology solutions to automate monitoring and reduce manual errors.
  
• Schedule internal audits and periodic independent reviews to identify issues early

Tranche 2 compliance isn’t “set and forget”; it requires continuous improvement, training and adaptation.

Why prepare early?

Non‑compliance results in more than fines, it damages your reputation, erodes client trust and disrupts operations. Proactive businesses avoid penalties and build trust with clients by showing they take AML seriously. Preparation also positions you competitively; clients increasingly prefer firms that demonstrate strong AML/CTF practices.

Phased roadmap to Tranche 2 compliance

Need expert help?

Tranche 2 brings substantial new obligations. For tailored guidance specific to your sector, consider talking to our compliance specialists. The reforms align Australia’s AML/CTF regime with global standards and will be enforced from 1 July 2026, so there is limited time to get ready.

👉 Speak with a compliance expert today

Implementing an anti-money laundering (AML) solution is not a one-off event; it marks the beginning of an ongoing process of refinement, monitoring, and improvement. Australian regulatory bodies, including AUSTRAC, expect institutions to continually manage and enhance their AML controls to address emerging threats. This guide provides practical strategies to ensure your compliance team remains effective and up-to-date.

Ongoing Transaction and Customer Monitoring

Effective AML compliance requires constant vigilance. SaaS solutions offer continuous monitoring capabilities, including regular rescreening of customer records against sanctions and Politically Exposed Person (PEP) lists, as well as real-time detection of suspicious transactions. This proactive approach significantly improves upon intermittent manual checks, reducing fraud detection times and significantly increasing accuracy rates in financial services industries.

Compliance analysts must promptly address automated alerts generated by the system. Clear procedures for investigating, documenting, and reporting these alerts should be seamlessly integrated into daily operations.

Global Data offers WatchEye, a comprehensive SaaS AML monitoring platform tailored specifically for Australian regulatory requirements, designed to streamline these processes efficiently. You can learn more about it here.

Regular Rule Tuning and Model Calibration

Continuous improvement of detection rules is essential. After the initial rollout, compliance teams should monitor metrics such as:

• Alert volumes
• False-positive rates
• True-positive detection hits

Periodic model validations and tuning exercises are vital. Thresholds can be adjusted, new detection rules or machine learning models introduced, and ineffective rules retired. Leading organisations use a sandbox or test environment to safely trial rule changes, allowing adaptation to emerging money laundering patterns without disrupting live monitoring.

Agility in Responding to Emerging Risks and Typologies

AML risks evolve rapidly, highlighted by new fraud typologies emerging during events like the COVID-19 pandemic. Compliance teams must respond swiftly by updating detection controls. SaaS platforms facilitate quick deployment of new detection rules or adjusted parameters with minimal IT involvement. For instance, institutions using agile AML solutions reported average response times of under 48 hours to update detection rules in response to emerging fraud typologies during the COVID-19 pandemic.

Real-world examples illustrate the critical importance of agile AML solutions. As detailed in the video above, TD Bank faced penalties exceeding $3 billion due to inadequate AML practices, allowing approximately $670 million to be laundered through its systems (source). Similarly, Danske Bank saw approximately €200 billion in suspicious transactions flow through its Estonian branch due to insufficient AML controls (source). These cases highlight the urgency for financial institutions to adopt responsive AML systems to mitigate risks effectively.

To maintain this agility:

• Develop internal processes for reviewing regulatory warnings and industry intelligence.
• Quickly adapt your AML solution to incorporate these insights, meeting regulator expectations for prompt responses to emerging threats.

Leveraging Automatic Regulatory Updates

AML regulations continually evolve, and compliance solutions must promptly reflect these changes. High-quality SaaS providers regularly update platforms in line with regulatory amendments, such as updates to sanctions lists or new risk indicators. Organisations should ensure their SaaS vendors actively monitor and integrate updates from key regulatory bodies, including AUSTRAC, FATF guidance, and other relevant international directives.

Internally, compliance officers should subscribe to trusted regulatory intelligence services (e.g., Thomson Reuters Regulatory Intelligence) to stay informed about ongoing regulatory changes—often numbering in the hundreds annually.

Audit and Documentation

Maintaining comprehensive documentation is an ongoing requirement, complementing active monitoring. Every system change—including rule adjustments, threshold modifications, or software updates—must be thoroughly documented with clear rationale for regulatory review. Robust documentation supports a strong AML model governance framework and ensures readiness for audits.

Regularly reviewing and updating AML policies, procedures, and risk assessments is essential. These reviews should align with system capabilities and the evolving regulatory landscape.

Measuring Performance and Driving Improvements

Establishing key performance indicators (KPIs) is critical for tracking the effectiveness of your AML solution. Industry data from SQA Consulting and RegTech Consulting suggest the following KPIs:

• Alert-to-report conversion rates: Approximately 2.8% of alerts typically lead to suspicious activity reports (SARs).
• Investigation turnaround times: Automation and effective AML systems can reduce investigation times by about 50%.
• Reduction in manual workloads: Implementing automation can decrease manual AML investigations by up to 66%.

Sources: SQA Consulting, RegTech Consulting.

Monitoring these KPIs provides valuable insights, highlighting areas of declining performance or identifying opportunities for further optimisation. Utilise SaaS dashboards to discuss these metrics during regular compliance meetings, fostering a culture of continuous improvement within your organisation.

Conclusion

Continuous monitoring, agility in addressing emerging risks, timely regulatory updates, rigorous documentation, and performance measurement form the cornerstone strategies for effective AML compliance. Adopting these practices ensures Australian institutions not only meet AUSTRAC’s expectations but proactively strengthen their defence against evolving financial threats.