AML/CTF Tranche 2 – The Need to Know

Tranche 2 – The Need to Know

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Australia is undertaking the most significant reform of its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime in nearly two decades. Known as “Tranche 2”, these reforms strengthen the country’s defences against financial crime by closing long-standing regulatory gaps, tightening obligations, and expanding the regime’s scope, aligning more closely with international standards.

Tranche 2 entities

Perhaps the biggest addition of the reform is the expansion of the AML/CTF regime to cover additional services and industries that are recognised domestically and internationally as vulnerable to criminal exploitation. Instead of naming specific industries, the reform uses “designated services” to define the scope of entities captured by the regime. An entity only becomes a "reporting entity" subject to AUSTRAC regulation if it provides one or more of these high-risk services. These include real estate agents and property developers, dealers in precious stones, metals and related products, lawyers, conveyancers, accountants, trust and company service providers, and additional virtual asset service providers.

Implementation will be phased, starting with AML/CTF obligations being extended to the new Tranche 2 entities by 1 July 2026.

Key changes to the AML/CTF obligations

Further to the extended scope, the reform also introduces substantial rewrites and additions to the existing AML/CTF obligations.

Notably, the previous two-part AML/CTF program structure will be replaced with a single, more robust risk-based framework requiring entities to develop tailored AML/CTF programs aligned with their specific money laundering, terrorism financing, and proliferation financing risks. This simplification is intended to improve compliance effectiveness, particularly for smaller businesses that have struggled with the complexity of the existing regime.

The amendments also introduce a more prescriptive Customer Due Diligence (CDD) framework, streamlining initial and ongoing CDD processes, enabling greater flexibility for low-risk customers, and providing clearer requirements for enhanced due diligence for politically exposed persons (PEPs) and other high-risk customers.

In addition, the tipping-off offence will be updated to encourage appropriate information sharing by targeting disclosures that are likely to prejudice investigations, rather than applying broad prohibitions.

A new “business group” framework will replace the current designated business group model, reflecting modern corporate structures and enabling more efficient risk management and information sharing across related entities. Business groups will be required to nominate a lead reporting entity, and changes to group membership will apply across all members, strengthening clarity and accountability.

The reforms also introduce enhanced value transfer requirements aligned with international standards, mandating that payer and payee information accompany both traditional and virtual asset transfers.

Finally, the Financial Transactions Reports Act 1988 will be repealed, consolidating AML/CTF obligations into a single legislative framework.

The way forward

Given the scale and complexity of these reforms, businesses must first assess whether they fall within the expanded scope of the AML/CTF regime and, if so, understand the new obligations they will be required to meet. While implementing updated risk and compliance frameworks may involve significant upfront investment, the cost of non-compliance can be far greater, with some of Australia’s largest civil penalties historically arising from AML/CTF breaches.

To prepare for the new regime, reporting entities should take immediate steps to familiarise themselves with the amended rules and AUSTRAC guidance, assess how the changes impact their business model, and update their internal risk assessments. Where obligations or implementation is unclear, seeking specialist advice early can help reduce regulatory risk and avoid costly remediation later.

The role of FundBase Group

In navigating the expanded AML/CTF regime and the new obligations arising from the Tranche 2 reforms, many reporting entities will benefit from specialist operational and compliance support. FundBase Group provides integrated fund infrastructure and regulatory services designed to assist businesses in meeting their governance, risk management, and regulatory obligations efficiently and consistently. Through its platform, Fundcorr, FundBase supports entities with investor onboarding and verification processes, ongoing customer due diligence, transaction monitoring frameworks, record-keeping systems, and regulatory reporting, helping to embed AML/CTF compliance into day-to-day operations.

FundBase Group’s end-to-end operating model enables businesses to centralise key compliance and administrative functions within a structured and professionally managed environment. By combining licensing support, responsible entity and trustee services, fund administration, and compliance oversight, FundBase helps reduce operational complexity and regulatory risk. This approach allows reporting entities to adapt to the evolving AML/CTF framework, maintain alignment with AUSTRAC expectations, and implement scalable systems capable of supporting long-term growth under the strengthened regulatory regime.

Reach out today to discuss your AML/KYC and operational needs.

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