Compliance that works: Preparing your law firm for AUSTRAC’s Tranche 2 reforms

I’m Rhiannon Davies, an AML compliance specialist and Associate at AML Sorted. In my role, I spend a lot of time helping law firms untangle the complexity of compliance and put in place systems that actually work in practice.

With AUSTRAC’s Tranche 2 reforms set to apply from 1 July 2026, law firms across Australia will soon face AML/CTF obligations that have long applied to banks and financial institutions.

It’s a big shift, but it doesn’t have to be overwhelming.

In this blog, I’ll walk you through:

• what’s changing,

• why it matters, and

• the practical steps you can take now to be ready.

What’s changing under Tranche 2?

For the first time, Australian law firms will need to comply with AUSTRAC’s AML/CTF regime.

That includes:

• Enrolling with AUSTRAC when you begin providing designated services.

• Customer due diligence (CDD) for all new clients.

• Enhanced customer due diligence (ECDD) for higher-risk matters, like complex structures or politically exposed persons.

• Beneficial ownership checks - identifying who is really behind a client or transaction.

• Ongoing monitoring of client activity.

• Suspicious matter and threshold reporting to AUSTRAC.

• Recordkeeping obligations.

• A tailored AML/CTF Program that documents your policies and procedures.

• Staff training to make sure everyone understands their role.

• Annual reporting to AUSTRAC.

• Independent review of your program to ensure it works.

  
  

The risks of waiting

Leaving preparation until the last minute comes with real risks:

• Financial penalties for non-compliance.

• Reputational damage with clients and the wider market resulting in loss of trust.

• Internal stress if systems aren’t ready.

• Missed opportunities - more clients will ask how you manage compliance.

• Facilitating criminal activity .

Starting now gives you time to build confidence and avoid unnecessary disruption.

My roadmap for compliance that works

Here’s how I recommend firms prepare between now and July 2026:

1. Collate data on

• The types of customers you have.

• What services you provide and how you provide those services.

• The countries you operate in or do business in.

2. Assess your risk

• Map which of your services will fall under AUSTRAC’s “designated services”.

• Look at your client base: are you exposed to higher-risk jurisdictions or structures?

• Audit your current onboarding, monitoring, and recordkeeping.

2. Put governance in place

• Appoint an AML Compliance Officer.

• Make sure partners and leaders understand their accountability.

• Set clear escalation points for red flags.

3. Develop your AML/CTF Program

• Document policies and procedures in plain language.

• Cover onboarding, monitoring, reporting, training, and review.

• Scale it to fit your firm, proportionate is key.

4. Choose the right systems

• Consider RegTech for client screening, verification, and monitoring.

• Where possible, integrate compliance into your existing practice management tools.

• Avoid over-engineering, keep it practical.

5. Train your people

• Deliver role-specific training with real examples.

• Encourage staff to speak up when something doesn’t feel right.

• Reinforce that compliance is part of delivering excellent client service.

6. Test and review

• Run scenario exercises.

• Plan for an independent review before July 2026.

• Keep adapting as guidance develops.

Pitfalls I see too often

• Assuming the reforms won’t apply to your firm.

• Underestimating how complex beneficial ownership checks can be.

• Relying on manual processes that won’t scale.

• Not bringing staff on the journey early enough.

• Thinking that the job is done once 1 July 2026 comes around.

Why it pays to act now

Early preparation means less stress, smoother processes, and more time to embed a positive compliance culture. Most importantly, it shows your clients that your firm is forward-looking and serious about risk management.

My Final thoughts

Tranche 2 will change the way law firms approach client onboarding and risk management, but it doesn’t have to be disruptive. With the right planning, compliance can strengthen your firm’s resilience and reputation.

At AML Sorted, we’re supporting firms right now with gap assessments, training, and practical AML/CTF Programs. If you’d like to understand where your firm stands, we’d be happy to help.

Rhiannon Davies, AML Compliance Specialist & Associate at AML Sorted