Many law firms are aware that AML reforms are coming. Far fewer have a clear sense of what being “operationally ready” actually requires.
With Tranche 2 commencing on 1 July 2026, firms providing designated services will be expected to meet AML/CTF obligations from day one. For many, this represents a fundamental shift in how risk, clients and internal processes are managed.
We spoke with AML expert Katherine Shamai about where firms should be focusing their attention now, and what tends to be underestimated in the lead-up to commencement.
Q: At a high level, what is changing for law firms under Tranche 2?
A: The key change is that law firms providing certain designated services will be brought within the AML/CTF regime as reporting entities. This introduces a range of obligations, including enrolment with AUSTRAC, implementing an AML/CTF program, conducting customer due diligence, and reporting suspicious matters.
Q: Will all law firms be captured by the regime?
A: No. The regime applies where a firm provides designated services, such as assisting with real estate transactions, corporate structuring, or managing client funds. The focus is on the nature of the services being provided, not the status of the practitioner. Each firm will need to assess its own service lines to determine whether it falls within scope.
Q: Why has the legal profession been brought into the AML framework now?
A: There has been sustained international and domestic pressure to regulate so-called “gatekeeper professions”, including lawyers. These professions can facilitate the movement of funds through legitimate structures, sometimes without visibility of the underlying source of wealth. The reforms are intended to address that gap and strengthen Australia’s overall AML/CTF regime.
Q: What will catch firms off guard as these reforms take effect?
A: Often it is the breadth of what is required. The regime is not limited to a set of policies or documents. It affects how clients are onboarded, how risk is assessed, how matters are monitored, and how issues are escalated internally. For many firms, this represents a shift in both systems and culture.
Q: What does an outcomes-based regime mean in practice?
A: Rather than prescribing specific steps, the regime focuses on whether a firm can effectively identify, assess and manage its money laundering and terrorism financing risks. This allows flexibility, but it also places responsibility on firms to ensure their approach is appropriate for their size, structure and areas of practice.
Q: AUSTRAC has released Starter Kits. How should firms approach them?
A: The Starter Kits can be a complete solution if your firm fits within the suitability criteria. If your firm is more complex, they are still a useful starting point, but they may not be a complete solution. Firms need to assess whether the materials are suitable for their practice, whether they are appropriate for their own risk profile and operations, and adapt them accordingly. Simply adopting them, if your firm is outside the suitability criteria, without modification is unlikely to meet regulatory expectations. It is also critically important to recognise that these are documents only, and firms will need to implement these and adhere to the documented controls in order to be compliant with their AML/CTF obligations.
Q: Where should firms be focusing their efforts now?
A: Firms should be focused on understanding their risk exposure, identifying which services fall within the regime, and putting in place the governance, systems and processes needed to manage those risks. That includes assigning responsibility internally, training staff, and ensuring that compliance is embedded into day-to-day practice rather than treated as a standalone exercise.
Keen to learn more?
Katherine Shamai will be presenting a session on this topic as part of our upcoming one-day AML/CTF masterclass, where she will explore how law firms can prepare for Tranche 2 in practice.
