Australia is on the cusp of implementing major changes to its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime through the upcoming Tranche 2 reforms. These reforms are designed to strengthen Australia's defences against financial crime and align the country with international standards set by the Financial Action Task Force (FATF).
What is Tranche 2?
Tranche 2 refers to the second phase of reforms to Australia's AML/CTF laws, which will extend AML/CTF obligations to additional sectors considered vulnerable to money laundering and terrorism financing risks.
Why is it being implemented?
The primary drivers behind Tranche 2 are:
- Closing regulatory gaps in high-risk sectors
- Aligning with FATF recommendations
- Enhancing Australia's ability to combat financial crime
- Avoiding potential "grey listing" by FATF, which could have serious economic consequences
When will Tranche 2 be implemented?
Based on the current draft proposal, reporting entities are expected to be compliant by 2026. This timeline is designed to allow existing reporting entities sufficient opportunity to adapt their AML/CTF compliance programs, while also providing newly regulated entities adequate time to develop and implement their own programs. A crucial aspect of this transition will be the comprehensive revision of the AML/CTF Rules, which will reflect and support the proposed legislative changes.
Key changes anticipated under Tranche 2
- Expanded Scope: Tranche 2 will bring new sectors under AML/CTF regulation, including real estate professionals, lawyers, accountants, trust and company service providers, and dealers in precious metals and stones. These sectors have been identified as potentially vulnerable to exploitation for money laundering or terrorism financing. The inclusion of these professions will significantly broaden the reach of Australia's AML/CTF regime, bringing it more in line with international standards.
- Simplified AML/CTF Programs: The reforms will streamline the current two-part AML/CTF program into a single, risk-based obligation. This new approach will require organisations to conduct comprehensive risk assessments and implement proportionate measures to mitigate identified risks. The simplification aims to make compliance more straightforward and effective, particularly for smaller businesses that may have found the previous system overly complex.
- Customer Due Diligence (CDD) Reforms: The new CDD framework will introduce a clear requirement for customer risk rating, simplify initial and ongoing CDD processes, and provide more flexibility in applying simplified due diligence for low-risk customers. It will also offer clearer guidelines for enhanced due diligence in high-risk situations. This risk-based approach is designed to ensure that resources are focused where they're most needed, potentially reducing the regulatory burden for low-risk customers while intensifying scrutiny on high-risk ones.
- Business Group Concept: A new "business group" framework will replace the current "designated business group" concept. This change acknowledges the complexity of modern corporate structures and will allow for more efficient risk management and information sharing within diverse business arrangements, including franchises and other non-traditional structures. This should facilitate more effective AML/CTF management across entire organisations.
- Modernised Tipping Off Offence: The reforms will update the tipping off offence to focus on preventing disclosures that are likely to prejudice investigations, rather than imposing blanket prohibitions on sharing information. This change aims to strike a better balance between protecting investigations and allowing necessary information sharing for risk management purposes, providing more clarity for organisations on when they can share information about potential financial crimes.
- Changes for Gambling Service Providers: The CDD exemption threshold for gambling transactions will be lowered from $10,000 to $5,000, aligning more closely with international standards. This change will require gambling service providers to conduct CDD measures on a larger number of transactions, potentially increasing the regulatory burden on the sector but addressing significant money laundering risks in gambling.
- Repeal of the Financial Transaction Reports Act 1988: The Financial Transaction Reports Act 1988 will be repealed, streamlining obligations and establishing a single source of AML/CTF requirements for industry. This will simplify the regulatory landscape, as most of its obligations have already been superseded by the AML/CTF Act.
- Revised Internal Controls and Oversight Requirements: The roles of senior management and AML/CTF Compliance Officers will be clearly defined to ensure effective implementation of AML/CTF programs. Businesses will need to establish internal controls tailored to their risk levels, ensuring a culture of compliance within their organisations.
- Pre-commencement Customers: New requirements will be introduced for risk-rating and conducting due diligence on long-standing customers who pre-date the original AML/CTF Act. This change aims to address a significant gap in the current regime, ensuring that all customers, regardless of when their relationship with a business began, are subject to appropriate AML/CTF measures.
- Technology Neutral Approach: The reforms aim to provide flexibility for businesses to use new technologies in meeting their AML/CTF obligations, as long as they can demonstrate compliance. This approach should encourage innovation in compliance solutions while ensuring that the core objectives of the AML/CTF regime are still met.
How can bronID help?
Compliance with AML/CTF regulations is complex, time-consuming, and costly. From writing your AML/CTF Program to implementing the relevant procedures and setting up processes, everything takes time and diverts resources away from your core business operations.
At bronID, we offer a complete solution to get businesses set up and compliant. Our comprehensive services include developing tailored AML/CTF Programs, providing staff training, setting up tools needed for ID verification (KYC/KYB), implementing relevant screening processes (PEPs, Sanctions, Negative Media), and performing audits for existing businesses. Our solutions can be used separately or packaged for a more cost-effective approach. Whether you're struggling with compliance or simply want to streamline your processes, bronID has the expertise to help.
If you're looking to navigate the complexities of AML/CTF compliance efficiently and effectively, please book a free consultation with us. Let bronID help you focus on your business while we ensure your AML/CTF obligations are met.
