Background

On 10 December 2024, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (AML/CTF Amendment Act) received Royal Assent. The AML/CTF Amendment Act enacts a new wave of reforms aimed at modernising Australia’s AML/CTF regime. We previously provided a detailed background on the impacts of the AML/CTF Amendment Bill, linked here: Impacts of the AML/CTF Amendment Bill on new and existing entities.

The amending Act expanded the AML/CTF regime to certain high-risk services including lawyers, conveyancers, accountants, trust and company service providers, real estate professionals, and precious metal/stone dealers. 

It also reforms many of the obligations for current regulated entities. This includes changes to:

• the tipping off prohibition
• AML/CTF programs
• business group entities
• mandated risk assessments
• initial and ongoing customer due diligence 

The new AML/CTF Rules framework

AUSTRAC proposes to amend the AML/CTF Rules framework and establish two separate instruments: 

1. New General Rules

The Anti-Money Laundering and Counter Terrorism Financing Rules 2025 (new General Rules) is proposed to align with the AML/CTF Amendment Act and will include most of the current Rules – some of which may be rewritten or will be repealed entirely.

The new General Rules are stated to follow a more outcomes-based system of compliance, potentially removing the unnecessary prescriptive steps of the current Rules and simplifying its overall structure which was introduced on a piece meal basis so includes, for example, customer identification procedures across 17 separate non-sequential chapters. Only a few of the current exemptions will be preserved in their current form.

2. Exemption Rules

The renamed AML/CTF (Exemptions) Rules 2007 (the Exemption Rules) are proposed to retain some existing exemptions to the AML/CTF Act listed in the Current Rules, such as:

• Issuing or selling a security or derivative (chapter 21);
• Certain transactions relating to the over-the-counter derivatives market (chapter 22);
• Non-financiers (chapter 23);
• Customer identification procedures for assignment, conveyance, sale or transfer of business (chapter 28);
• Certain transactions relating to currency exchange transactions (chapter 31);
• Commodity warehousing of grain (chapter 42);
• Friendly Society closed funds (chapter 43);
• Debt Collection (chapter 45);
• Risk-only life policy interests in a superannuation fund (chapter 47);
• Salary packaging administration services (chapter 48);
• International Uniform Give-Up Agreements (chapter 49); and
• Customer identification procedures for compulsory partial or total transfer of business made under the Financial Sector (Business Transfer and Group Restructure) Act 1999 (chapter 66).

AUSTRAC is separating these instruments from the new General Rules which will apply more generally to reporting entities.

AML/CTF programs

The AML/CTF Amendment Act and the new General Rules will combine to produce the suite of obligations relating to AML/CTF programs. Broadly, the legislation and rules are updated to include:

• ML/TF risk assessment policies;
• AML/CTF policies that mitigate and manage ML/TF risks and supports internal compliance management;
• additional AML/CTF policies for compliance management. These policies are contained in the Exposure Draft Rules (they are in addition to those in the AML/CTF Amendment Act) and include for example, policies to prevent tipping off and that ensure reporting entities are aware of the triggers that necessitate making a suspicious matter report;
• specific requirements for compliance management policies including in relation to due diligence policies (which must be considered before a role with an AML/CTF function is filled and must remain through their employment) and training policies (which applies to roles with an AML/CTF function and must facilitate initial and ongoing training) – these replace current employee due diligence and AML/CTF awareness training programs;
• specific requirements for AML/CTF policies on the conduct of independent evaluations including steps that a reporting entity must follow when responding to the evaluations; and
• additional AML/CTF policies that mitigate and manage ML/TF risks associated with value transfer services.

AML/CTF compliance officer

The new rules set out additional eligibility requirements for a reporting entity’s AML/CTF compliance officer. For example, an AML/CTF compliance officer must be:

• a resident in Australia;
• a fit and proper person; and
• meet the requirements in the AML/CTF Rules.

The Exposure Draft Rules provide additional guidance (that aligns with international best practice and the Commonwealth regulatory regime) to assist a reporting entity in assessing whether a person is fit and proper. The guidance is non-exhaustive and external factors may be considered when determining whether a person is fit to perform the duties of the AML/CTF compliance officer position.

Reporting groups (formerly ‘designated business groups’)

Reporting groups will replace the concept of designated business groups. The purpose of the replacement in concept is to require the management of money laundering and terrorism financing (ML/TF) at the group level and to encourage more efficient completion of AML/CTF obligations. 

Non-reporting entities are now included in a reporting group despite not being subject to direct AML/CTF oversight by AUSTRAC. 

It is proposed that a ‘lead entity’ of a ‘reporting group’ will initiate the development and management of an AML/CTF program that follows the legislated requirements and will ensure compliance amongst the reporting group. Every reporting group must have a lead entity – exactly what conditions determine who is the lead entity, is being considered by AUSTRAC. However, the exposure draft rules propose that a business will be a lead entity of a reporting group (formed by operation of law) if it:

• is an Australian resident;
• provides a designated service; or
• is a registered foreign company (under Division 2 of Part 5B.2 of the Corporations Act 2001); and
• it controls all other designated service provider businesses in the group.

A reporting group will be automatically formed if one or more people in the group provides a designated service and if any conditions prescribed in the Rules are met. For example, where a business is providing designated services and is controlled by another (such as a subsidiary), a reporting group will be formed. However, such a group may only be suitable where all businesses in the group are prepared to share AML/CTF information related to customers and compliance.  

Customer due diligence (CDD)

>Initial customer due diligence (initial CDD) obligations will be established in Part 2 of the AML/CTF Amendment Act and are proposed to replace the existing ‘Applicable Customer Identification Procedures’ in Part 4 of the Current Rules. Ongoing customer due diligence (ongoing CDD) will also be required in accordance with the new rules. Requirements for delayed CDD and reliance provisions are also provided.

The design of the new CDD related rules is intended to be more flexible and allow further tailoring than current rules so as to better reflect the identified ML/TF risk.

Transfer of value (travel rule)

The AML/CTF Amendment Act proposes to simplify definitions of transfers of value and international value transfer services and introduce updated “travel rule” obligations for financial institutions and new travel rule obligations for remitters and virtual asset service providers. These rules are intended to provide increased payment transparency and to aid preventative measures.

These rules will apply these requirements to:

• traditional transfers to and from banks;
• certain remitter models where the remitter deposits money into the customer’s bank account, but the bank otherwise does not have an active role in the value transfer;
• certain financial technology and payment service provider transfer services; and
• alternative remittance, hawala and other offsetting arrangements.

Different risk mitigation measures for the travel rule are also included in the draft rules and are applicable to beneficiary and intermediary institutions (which now extends to institutions beyond banks sending/receiving electronic transfers).

Keep open notices (formerly ‘Chapter 75 notices’)

Under section 39B of the AML/CTF Amendment Act, a ‘keep open notice’ may be issued to a reporting entity where a senior member of a specified agency reasonably believes that the provision of a designated service by the reporting entity to a customer would assist in the investigation by the agency of a serious offence. Section 39B also defines ‘senior member’, ‘specified agency’ and ‘serious offence’. A ‘keep open notice’ will replace the current process in Chapter 75 of the existing Rules (which allows for AUSTRAC to issue exemption notices to reporting entities for the same purpose).

ther changes

In light of the new AML/CTF Act, the Financial Transaction Reports Act 1988 (FTR Act) has been repealed due to the significant overlap with additional or updated obligations under the AML/CTF Amendment Act. The reporting obligations under the FTR Act will cease when it is repealed on 7 January 2025, 28 days following Royal Assent.

We encourage those regulated by the FTR Act (such as solicitors, motor vehicle dealers, buyers and sellers of travellers cheques, and offshore online remitters) to review the changes to their obligations. Further information can be found here: Repeal of the Financial Transaction Reports Act 1988 | AUSTRAC.

Next steps 

The public consultation period on the draft Rules is now open and will close 14 February 2025. AUSTRAC invites stakeholders, including reporting entities and industry associations, to make submissions anonymously or under your name, until the February deadline. AUSTRAC identified that it will not individually respond to all submissions but may respond if it requires further detail or clarification. Consultation on the second exposure draft, which will include amendments made in response to the first consultation period, is likely to open in early 2025.

We anticipate that further changes will be made in subsequent consultation periods and recommend that both new and existing reporting entities remain alert to changes in their obligations under the new AML/CTF laws, some of which will require fundamental changes to compliances systems to ensure compliance.

Please contact our team if you have any queries regarding any of the above.