Although financial institution customers such as lawyers, accountants and real estate agents are already well known to their financial institutions, the new requirement for Tranche 2 gateway service providers to be reporting entities in their own right will result in financial institutions themselves needing to consider their obligations arising from their new reporting entity customers.

Financial institutions are already subject to the obligation to report suspicious matters to Austrac.

This obligation will extend to the obligation in 2026 to investigate whether their customers who appear to be Tranche 2 entities are registered as reporting entities with Austrac as required by law.

The first step is to identify your Tranche 2 customers.

These include lawyers, conveyancers, accountants, trust and company service providers, real estate professionals, and precious metals and stones dealers.

Tranche 2 entities may enrol as reporting entities with AUSTRAC from 31 March 2026.

AML/CTF obligations commence for Tranche 2 entities on 1 July 2026.

Failure to investigate whether a customer should be a reporting entity could itself be an offence under section 41 of the AML/CTF Act.

ASIC’s action against Star officers has already shown that it is an offence for company officers to provide inaccurate, incomplete and misleading representations to their bank.

The issue then arises whether financial institutions are obliged to block their customers’ transactions or “de-bank” them.

In its guidance on providing financial services for customers that financial institutions assess to be higher risk Austrac said:

“The AML/CTF Act requires financial institutions to develop tailored risk-based systems and controls that are proportionate to the level of ML/TF and serious crime risk they face in providing services to particular businesses. Using a risk-based approach does not require disengagement from risk or prevent financial institutions from establishing business relationships with higher-risk customers.”

Austrac has outlined the customer due diligence approaches that could be used for new Tranche 2 entities as well as businesses such as gambling companies, illegal tobacco sellers and crypto ATM providers.

Financial institutions must handle their customer relations to avoid breaching the “tipping off” offence as recently amended.

“Each bank has its own risk-based systems and controls to identify and assess whether a banking relationship meets its regulatory requirements and its own risk appetite. It is the bank’s decision about who it wishes to continue a banking relationship with, the restrictions it places on the use of accounts, and the standards it expects of its customers.”

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