AUSTRAC updates transitional rules for Tranche 1 AML/CTF obligations

*Disclaimer: This does not impact Tranche 2 Customers (Real Estate, Law, Accounting) 

AUSTRAC has released an update to the transitional rules supporting Australia’s AML/CTF reforms, introducing extended timeframes for certain obligations that apply to existing reporting entities (Tranche 1). The changes affect the timing of initial customer due diligence (CDD), compliance officer notifications, and independent evaluations.

The update provides greater clarity on how the reforms are intended to be implemented in practice and reflects the scale of operational change required under the reformed AML/CTF framework.

Background: Tranche 1 and the AML/CTF reform program

Australia’s AML/CTF reforms arise from the AML/CTF Amendment Act 2024, which modernises the regime and aligns it more closely with international standards, including FATF guidance.

The reforms are being implemented in phases:

• Tranche 1 entities are businesses already regulated under the AML/CTF Act, such as banks, remitters, casinos, and lenders.
• Tranche 2 entities include newly regulated professions such as lawyers, accountants, real estate professionals, and trust and company service providers, with obligations commencing from 1 July 2026.

To support this phased rollout, the legislation includes transitional rules that modify how and when certain obligations apply. AUSTRAC’s latest update extends several of these transitional arrangements for Tranche 1 entities only.

Key change: Transitional period for initial Customer Due Diligence

The most significant change is the introduction of a three-year transitional period for initial CDD.

From 31 March 2026 to 30 March 2029, existing reporting entities may choose to either:

• Continue applying their pre-reform customer identification procedures (ACIP); or
• Opt in early to the reformed initial CDD requirements under the updated AML/CTF Rules.

Once an entity opts into the reformed framework, it must apply the new CDD requirements consistently to all new customers.

This flexibility applies only to initial CDD. Other obligations - including ongoing customer due diligence, transaction monitoring, and suspicious matter reporting - will apply from 31 March 2026, regardless of which initial CDD approach is used.

How the dual-track approach may operate

In practice, this allows entities to sequence implementation based on operational readiness:

• A large financial institution with legacy onboarding systems may continue using ACIP while upgrading systems, training staff, and updating internal controls, transitioning to the new CDD framework later in the period.
• A digitally mature entity may adopt the reformed CDD requirements from March 2026 to avoid maintaining parallel frameworks.

Both approaches are permitted under the transitional rules, provided the chosen framework is applied consistently and is supported by appropriate policies and procedures.

Governance and evaluation timeframes

Compliance officer notification

The deadline for existing reporting entities to notify AUSTRAC of their nominated AML/CTF compliance officer has been extended to 30 May 2026. This provides additional time for entities reviewing governance arrangements or reallocating compliance responsibilities as part of the reform process.

Independent evaluations

The transitional rules also adjust the timing of independent AML/CTF program evaluations. Newly regulated entities, and some existing reporting entities, will not be required to complete their first independent evaluation until no earlier than 1 July 2029, depending on when their AUSTRAC account is activated.

This change is intended to avoid duplication where recent evaluations have already been completed and to allow entities to prioritise implementation of the reformed requirements.

Why these delays were introduced

The updated transitional rules do not alter the substance of the reforms. Instead, they reflect how regulators expect them to be implemented in practice.

In particular, the changes acknowledge:

• The complexity of redesigning CDD frameworks, onboarding systems, and data collection processes
• The need to manage reform alongside the expansion of the AML/CTF regime to Tranche 2 sectors
• The importance of structured, consistent implementation rather than compressed or fragmented change

The extended timeframes are intended to support an orderly transition while maintaining existing AML/CTF controls.

What the transitional relief does - and does not - do

The updated transitional arrangements provide flexibility, but they do not suspend AML/CTF obligations.

During the transitional period:

• Ongoing CDD, transaction monitoring and SMR obligations continue to apply
• Entities must continue to manage ML/TF risk in line with their risk assessments
• Transitional relief applies only to specific obligations and for a defined period

The relief is designed to support implementation, not to reduce regulatory expectations.

After the transitional period ends

The transitional arrangements for Tranche 1 entities are time-limited. From 30 March 2029, existing reporting entities will be expected to apply the reformed AML/CTF Rules in full, including the new initial CDD framework.

At that point:

• Pre-reform ACIP processes will no longer meet the requirements of the AML/CTF Rules
• All new customers must be onboarded under the reformed CDD framework
  
  
• AML/CTF programs, risk assessments and procedures must align with the updated rules

AUSTRAC has indicated that transitional relief is intended to support structured implementation. How an entity plans for and manages the transition period is therefore likely to be relevant in future supervisory engagement.

What Compliance Teams Should Focus on Now

In light of the updated timelines, compliance teams should prioritise:

1. Identifying which obligations are transitional and which apply immediately
2. Deciding when to transition to the reformed CDD framework, based on system readiness and operational impact
3. Updating AML/CTF programs and procedures progressively, rather than deferring changes until the end of the transition period
4. Ensuring staff understand which CDD framework applies and when changes occur

Key Takeaway

AUSTRAC’s update to the transitional rules provides additional time for Tranche 1 entities to implement the reformed AML/CTF requirements in a structured and controlled manner. While some obligations are delayed, core AML/CTF responsibilities remain in force, and the transitional period is finite.

For compliance professionals, the focus is now on planning and sequencing implementation so that systems, processes, and governance arrangements are aligned with the reformed regime well before transitional relief ends.