What Is the Risk-Based Approach to AML/CTF and How Do You Actually Assess It?

By Amy Bell, Solicitor and Founder of AML Sorted

Further to my training event on 6 August, I wanted to get this information in writing for ease of reference. The following blog is from the transcript and is written for lawyers in Australia to keep as a quick reference guide on the Risk-Based Approach for AML/CTF.

When it comes to anti-money laundering (AML) and counter-terrorism financing (CTF), the phrase "risk-based approach" gets used a lot. But what does it actually mean for your firm in practice? How do you know you’re doing it properly? And why does AUSTRAC care so much?

This was the focus of our recent training session with law firms and conveyancers preparing for Australia’s Tranche 2 reforms. If you missed it, here’s a quick recap of the most important takeaways.

🔍 What is a Risk-Based Approach?

Put simply, a risk-based approach is about prioritising your time and resources where the risks of money laundering or terrorist financing are highest. It’s not about having endless procedures or complex forms for every matter…it’s about being proportionate.

If a matter or client presents higher risk, your controls should be more robust. If they’re low risk, your approach can be simpler and faster. That’s the essence of proportionality.

As I said during the session:

“You don’t need to do more than the risk demands, but you do need to understand what the risk is before you decide what’s proportionate.”

🛠️ Where to Start With Risk Assessment

There are two key areas every firm needs to assess:

1. Firm-Wide Risk Assessment (FWRA) – this is where you consider your practice as a whole. What services do you offer? Who are your clients? Where do they come from? Are there higher-risk practice areas like conveyancing or international matters?

2. Client and Matter-Level Assessments – this is your day-to-day process of asking: “Is this client or matter higher risk than usual? What are the risk indicators?”

   
   

You need both of these assessments in place and up to date. Your FWRA informs your policies, while your matter-level assessments help you apply them in practice.

⚖️ It’s Not Just Box-Ticking - It’s About Judgement

One of the biggest myths I come across is that compliance is all about ticking boxes. It’s not. A good risk-based approach relies on professional judgement, backed by clear records of the decisions you make.

If you decide something is low risk and take a simplified approach, document it. If something feels off, even if it’s not black and white, take time to investigate and escalate it if necessary.

As I reminded attendees:

“The most powerful tool in AML compliance is curiosity. If something doesn’t feel right, it probably isn’t.”

💡 Key Questions to Ask in Every Matter

We walked through some practical prompts that every lawyer or conveyancer should be asking:

• Do I understand where the client’s money is coming from?

• Have I checked whether they or any associated parties are sanctioned?

• Are there any politically exposed persons (PEPs) involved?

• Does the transaction make sense for the client’s profile?

If the answer to any of those is “I’m not sure,” that’s a signal to dig deeper.

🧾 Tranche 2 Means Increased Scrutiny - Start Preparing Now

AUSTRAC’s Tranche 2 reforms are moving closer, and law firms, conveyancers and real estate professionals will soon fall within the scope of AML/CTF obligations.

That means:

• Mandatory risk assessments

• CDD (customer due diligence) processes

• Ongoing monitoring requirements

• Reporting of suspicious matters

These are already in place for financial institutions. It’s time for the legal sector to catch up.

✅ How AML Sorted Can Help

At AML Sorted, we specialise in helping law firms and conveyancers across Australia get ahead of their AML obligations.

We can help you with:

• Creating or reviewing your firm-wide risk assessment

• Designing practical client onboarding and matter-level assessments

• Drafting AML/CTF programs that meet AUSTRAC expectations

• Training your teams to spot risks and report concerns

If you're not sure where to begin (or want to sanity-check what you’ve already put in place) just reach out. This is exactly why we’re here.

You can reach me HERE or get in touch for a coffee with Rhiannon HERE.

📌 To stay updated on Tranche 2 reforms, join our mailing list or follow us on LinkedIn. And keep an eye out for our next free training session!

Thanks for joining me.