Tranche 2 for Law Firms at a Glance
- Tranche 2 for Law Firms brings certain legal services into the AML/CTF regime from 1 July 2026.
- Law firms are regulated based on the services they provide, not their job title or size.
- In-scope firms must enrol with AUSTRAC, assess ML/TF/PF risk and operate a written, risk based AML/CTF programme.
- Lawyers must apply customer due diligence, monitor matters and trust accounts, and report suspicious activity while managing legal professional privilege.
- AUSTRAC’s legal sector guidance and red flag indicators should directly inform your risk assessment, controls and staff training.
- Working with Tranche 2 consultants can help law firms scope their exposure, design practical controls and embed compliance into everyday legal workflows.
Why Tranche 2 reforms are happening
From 1 July 2026, many Australian law firms will move into a very different regulatory world. Certain legal services will become regulated designated services under the Anti Money Laundering and Counter Terrorism Financing Act, and AUSTRAC will expect law firms to behave much more like banks when it comes to managing financial crime risk.
Known collectively as Tranche 2 for Law Firms, these reforms will apply to legal practices of all sizes. That includes sole practitioners handling conveyancing and small commercial firms with trust accounts, as well as large corporate and private client practices that structure companies, trusts and cross border deals.
At our firm, we are already working with partners, general counsel and practice managers across the legal sector to help them understand what Tranche 2 for Law Firms really involves in day to day terms. This article brings that practical perspective together with the latest AUSTRAC guidance, so that you can start your readiness journey with confidence.
We will cover:
the new law, rules and AUSTRAC guidance in plain language
which legal services fall within Tranche 2 for Law Firms
key dates and implementation timelines
AML CTF obligations for law firms under the reformed regime
ML TF PF red flags for lawyers that AUSTRAC wants you to recognise
best practice steps for building a proportionate AML CTF framework in a legal environment
the real implementation challenges for law firms
how specialist Tranche 2 consultants, including our team, can help you get ready.
Tranche 2 for Law Firms
What is changing for law firms
The Anti Money Laundering and Counter Terrorism Financing Amendment Act 2024 expands the AML CTF regime to cover certain higher risk professional services, including legal work. From 1 July 2026, law firms that provide in scope designated services will have AML CTF obligations in the same legislation as banks and casinos.
Who is covered
AUSTRAC confirms that from 1 July 2026 AML CTF obligations will apply to certain services typically provided by lawyers, conveyancers and other Tranche 2 entities, not to the job title alone. It is the legal service that is regulated, not the label on the door.
Key dates for Tranche 2 for Law Firms
New AML CTF obligations for Tranche 2 entities start on 1 July 2026, with law firms able to enrol with AUSTRAC from 31 March 2026. Guidance and tools are being released progressively through the AML CTF Reform hub.
Core obligations for law firms
Law firms in scope will need to enrol with AUSTRAC, conduct formal ML TF PF risk assessments, implement an AML CTF programme, perform risk based customer due diligence, monitor matters and client funds, lodge suspicious matter and other reports, train staff and keep robust records.
Key AUSTRAC resources for legal practices
The new AML CTF law, rules and guidance for law firms
The AML CTF Amendment Act 2024 represents the most significant expansion of Australia’s AML CTF laws since the regime commenced. It amends the original AML CTF Act 2006 and is supported by updated AML CTF Rules and detailed AUSTRAC guidance.
For law firms, three aspects matter most.
Tranche 2 for Law Firms brings legal services into scope
Under the reforms, AML CTF obligations will apply to certain services typically provided by lawyers and conveyancers. These fall within a broader category of new regulated services for Tranche 2 entities, alongside real estate professionals, accountants, dealers in precious metals and stones, and trust and company service providers.
A more risk based and outcomes focused regime
The AUSTRAC reform material explains that the revised regime focuses less on box ticking and more on understanding and managing real ML TF PF risks. Reporting entities, including law firms, are expected to:
assess their own risks
design an AML CTF programme that is proportionate to those risks
show that the programme is actually being applied in practice.
Extensive AUSTRAC guidance tailored to legal professionals
AUSTRAC has already published sector specific material for legal professionals, including Risk insights and indicators of suspicious activity for legal professionals and a wider Risks and indicators of suspicious activity hub that covers all Tranche 2 sectors.
This guidance is not academic. AUSTRAC expects law firms to use it as an input to their risk assessments, AML CTF programmes and monitoring arrangements.
What Tranche 2 for Law Firms actually covers
A common misconception is that Tranche 2 for Law Firms will regulate all legal work. AUSTRAC is clear that it regulates designated services, not professional titles.
Designated services for professional services
The Professional services (Reform) guidance explains the new designated services listed for professional practices in table 6 of subsection 6(5B) of the amended Act. These include certain activities carried out by lawyers, conveyancers and other advisers where they act for or on behalf of a client in relation to higher risk transactions or arrangements.
Examples that are likely to be relevant to many law firms include:
creating, operating or managing companies, trusts or similar legal arrangements
acting, or arranging for another person to act, as a director, secretary, partner, trustee or similar office holder
managing client money or trust funds in a way that goes beyond routine fee collection
playing a central role in planning or executing the sale or purchase of real property or key business assets, rather than giving purely advisory views.
Using AUSTRAC’s “Check if you may be regulated” tool
Given the diversity of the legal profession, the safest starting point is AUSTRAC’s interactive Check if you may be regulated (Reform) tool. It allows you to answer questions about the services your firm provides and indicates whether AML CTF obligations are likely to apply.
Our recommendation is that partners use this tool in a structured scoping session, supported by a Tranche 2 consultant if needed, to document which practice areas are in scope for Tranche 2 for Law Firms and which sit outside.
3. Key timelines for Tranche 2 for Law Firms
The reforms are being rolled out in stages to allow newly regulated entities, including law firms, time to prepare.
According to the Home Affairs summary of the Amendment Act and AUSTRAC’s reform hub:
new AML CTF obligations for Tranche 2 entities that provide new designated services will not apply until 1 July 2026
those entities will be able to enrol with AUSTRAC from 31 March 2026
AUSTRAC is releasing sector specific reforms guidance for Tranche 2 entities across late 2025 and early 2026.
For law firms, a realistic timeline for Tranche 2 readiness runs roughly as follows.
Late 2025
Understand the reforms and confirm whether your services are in scope for Tranche 2 for Law Firms.
Begin your firm level ML TF PF risk assessment using AUSTRAC’s legal risk insights.
Early to mid 2026
Finalise your AML CTF programme and related policies.
Complete design and testing of new client due diligence and matter acceptance processes.
Configure and test any supporting technology and reporting processes.
From 31 March 2026
Enrol with AUSTRAC if you have identified that you will be a reporting entity.
From 1 July 2026
Apply your AML CTF programme in practice for all in scope designated services.
Commence reporting obligations and record keeping in line with AUSTRAC rules and guidance.
AUSTRAC’s regulatory expectations and priorities for 2025 to 26 make it clear that the regulator understands the challenge of these timelines, but still expects Tranche 2 entities to show genuine planning and progress.
AML CTF obligations for law firms
The Summary of obligations (Reform) page sets out the core obligations that apply to all Tranche 2 entities. For law firms, these obligations must be interpreted in the context of legal practice, client confidentiality and legal professional privilege.
Enrolment and registration
If your firm provides one or more designated services with a geographical link to Australia, you will be a reporting entity and must enrol with AUSTRAC. Some entities must also register, although that aspect is more relevant to remitters and digital asset providers than to law firms.
ML TF PF risk assessment
Under the revised regime, your firm must identify, assess and understand its money laundering, terrorism financing and proliferation financing risks. AUSTRAC’s programme guidance explains that your risk assessment must take into account:
the nature, size and complexity of your firm
your practice areas and the designated services you provide
how you deliver those services
the profile of your clients, including their sectors and jurisdictions
relevant national and sector risk insights, including AUSTRAC’s risk material for legal professionals. AUSTRAC+1
AML CTF programme
Your firm must document and implement an AML CTF programme that is tailored to your risk profile. This programme should cover:
governance and accountability, including the role of the partners or board and the appointment of an AML CTF compliance officer
firm level risk assessment and risk appetite
customer due diligence and enhanced due diligence
ongoing monitoring of clients, matters and trust accounts
internal reporting and escalation for suspicious activity
external reporting to AUSTRAC
staff training and awareness
record keeping and periodic independent review.
AUSTRAC’s AML CTF programme (Reform) pages give practical guidance on how to structure this for Tranche 2 entities.
Customer due diligence for legal clients
AUSTRAC’s overview of customer due diligence (Reform) reminds all reporting entities that they must understand who their customer is and why the customer is using their services.
For law firms, this means:
identifying and verifying the client and beneficial owners of any entities
understanding the purpose and intended nature of the retainer, including the transactions you are helping to structure or execute
conducting enhanced checks where there is higher risk, for example complex ownership structures, higher risk jurisdictions, politically exposed persons or unusual funding sources
keeping client due diligence information up to date as matters progress and circumstances change.
Reporting, including where privilege applies
Law firms will be required to submit suspicious matter reports and other reports to AUSTRAC where the statutory thresholds are met. AUSTRAC has issued specific guidance on Legal professional privilege (Reform), setting out how firms should manage situations where information relevant to an AUSTRAC request is subject to privilege.
The key point is that the AML CTF regime does not remove legal professional privilege. However, it does require firms to understand when privilege genuinely applies, how to document that position and how to engage with AUSTRAC in those cases.
Training and independent review
Finally, your AML CTF programme must include:
training for partners, lawyers, legal assistants and support staff who deal with client intake, matters and trust accounts
a plan for regular independent review of the effectiveness of your AML CTF programme.
Our experience is that Tranche 2 for Law Firms will only work in practice if the training is tailored to legal work and if independent review is seen as a practical health check rather than a ritual.
ML TF PF red flags for lawyers
AUSTRAC has devoted a complete guidance resource to Risk insights and indicators of suspicious activity for legal professionals. This is required reading for anyone working on Tranche 2 for Law Firms.
Drawing directly from that guidance, some of the most important ML TF PF red flags for lawyers fall into four clusters.
Client profile and behaviour
Indicators include situations where a client:
has high value assets with no clear funding source
has funds or transaction activity that does not match their financial standing, usual activities or employment status
refuses to identify the source of wealth or provides obviously misleading information
appears to act as a front for an undisclosed third party.
Use of legal structures and arrangements
Red flags that involve the way legal structures are set up or used include:
companies with an unknown or difficult to value equity source
repeated use of new legal entities without commercial justification
complex ownership or control structures that serve no clear legal or tax purpose
arrangements where decision makers are hidden behind nominees.
Transactions and payments
Risk indicators can appear in the transactions a firm helps to document or execute, for example:
instructions to move funds rapidly between unrelated entities or through multiple jurisdictions without clear reason
private loan agreements outside the regulated financial system with unclear funding sources
property or asset transfers at undervalue, or with unusual payment terms, between related parties
repeated last minute changes to instructions about where funds are to be sent.
Proliferation financing and sanctions
The reformed regime also stresses risks around proliferation financing. For law firms, this may arise where:
clients are involved in trade of dual use goods or sensitive technology with opaque ownership and counterparties
structures and contracts are used to disguise the true end user of goods in higher risk countries
payments are routed through jurisdictions associated with sanctions evasion.
In our Tranche 2 advisory work, we use these AUSTRAC indicators as a core input when designing case studies, training sessions and matter risk flags for legal practices.
Best practice for law firms preparing for Tranche 2
The firms that are progressing well on Tranche 2 for Law Firms have a few habits in common. They treat AML CTF as a strategic risk issue, not just a compliance obligation, and they build on existing governance and ethics rather than trying to reinvent everything from scratch.
Start with a structured risk assessment
Rather than guessing where risk sits, successful firms use AUSTRAC’s legal risk insights to support a structured risk assessment that answers three questions.
Which practice areas and services create the highest exposure to ML TF PF risk
Which client types and geographies are of most concern
How are our trust account arrangements and client money flows exposed to abuse.
This assessment is the foundation for every other decision in Tranche 2 for Law Firms.
Align AML CTF processes with client and matter workflows
Rather than bolting AML CTF checks onto the side, best practice is to embed them in existing processes:
matter opening and conflicts checks
new client acceptance and engagement letters
instructions to hold or move funds through trust accounts
corporate and trust formation workflows.
In our experience, lawyers are far more likely to comply consistently if AML steps are built into tools they already use, such as practice management systems and file opening forms.
Use technology with intent
Technology can make Tranche 2 for Law Firms more efficient, but only if it is chosen and configured with care. Possible tools include:
electronic identity verification and document capture
sanctions and politically exposed person screening
matter risk assessment and scoring
workflow tools that record approvals and escalation decisions.
AUSTRAC does not endorse specific providers, but its guidance is clear that technology does not remove your responsibility to understand and manage risk.
Train for real legal scenarios
Generic financial crime training rarely resonates with lawyers. Tranche 2 for Law Firms works best when training uses realistic scenarios:
unusual instructions in conveyancing or property matters
complex corporate structures in private client or tax work
unexplained third party payments in litigation settlements or commercial deals.
Using AUSTRAC’s own indicators as the source of those scenarios strengthens the link between training and regulatory expectation.
Prepare a clear position on legal professional privilege
Given the importance of privilege in legal work, every AML CTF programme for law firms should contain:
a clear statement of how the firm interprets legal professional privilege in the AML CTF context
procedures for assessing whether privilege applies to information requested by AUSTRAC
a process for submitting AUSTRAC’s legal professional privilege form when required.
This avoids confusion when time critical reporting decisions arise.
The real implementation challenges for law firms
Even with good guidance, Tranche 2 for Law Firms presents real challenges.
Culture and mindset
Many lawyers see themselves as advisers, not gatekeepers. Moving to a world where law firms are expected to detect and report suspicious activity can feel uncomfortable and, in some cases, contrary to long standing professional instincts.
Scope and boundary judgements
Distinguishing between pure legal advice and activity that crosses into a designated service is not always straightforward, especially in private client, corporate and commercial practices.
Legacy clients and files
Updating client due diligence and risk assessments for existing clients will be labour intensive. Many firms will need to revisit long standing relationships where basic information has never been collected in a structured way.
System fragmentation
It is common for firms to use separate systems for practice management, document management, time recording and trust accounting. Aligning these with AML CTF data and reporting requirements is a significant design task.
Balancing confidentiality, privilege and reporting
Law firms must honour confidentiality and privilege while also fulfilling their AML CTF reporting duties. Getting this balance wrong in either direction carries serious risks.
These challenges are manageable, but only if leadership treats Tranche 2 for Law Firms as a firm wide change programme, not a side project.
How Tranche 2 consultants can help your law firm
A specialist Tranche 2 consultant cannot take away your obligations, but they can help your firm move faster and with less risk. In our own Tranche 2 work with law firms, we typically support clients in five main areas.
Scoping Tranche 2 for Law Firms
We begin by mapping your services against AUSTRAC’s New industries and services to be regulated and Professional services (Reform) guidance, and by using the Check if you may be regulated tool with your leadership team.
This produces a documented, defensible view of which practice areas are in scope for Tranche 2 for Law Firms and which are not.
Designing your AML CTF risk assessment and programme
We then help you design:
a firm level ML TF PF risk assessment aligned with AUSTRAC expectations
an AML CTF programme that is tailored to your practice, incorporating AUSTRAC’s legal risk insights and red flags.
The aim is a framework that your partners can support and your staff can actually use.
Integrating processes and technology
Next, we work with your operations and technology teams to embed AML CTF controls into client intake, matter opening, trust account processes and reporting workflows. Where beneficial, we help you evaluate and implement proportionate RegTech solutions.
Training and culture
Our team designs and delivers training sessions that use real legal scenarios, drawn from AUSTRAC’s legal risk insights and from your own practice areas. This helps partners and lawyers see Tranche 2 for Law Firms not as a mere compliance imposition, but as part of ethical and sustainable legal practice.
Independent review and continuous improvement
Finally, once your AML CTF programme has operated for a period, we can provide independent review and help you respond to findings in a structured way, ready for AUSTRAC scrutiny.
Practical next steps for your firm
If you are a managing partner, general counsel or risk partner in an Australian law firm, three practical actions will put you on the front foot for Tranche 2 for Law Firms.
Spend some time with AUSTRAC’s reform material, particularly the AML CTF Reform hub, About the reforms, New industries and services to be regulated and Risk insights and indicators for legal professionals pages.
Hold an internal scoping workshop to identify which of your legal services may be designated services. Use the Check if you may be regulated tool and document your initial conclusions.
Decide whether you want to build Tranche 2 capability entirely in house or whether you would benefit from working with an external Tranche 2 consultant. If you would like to explore how our firm can support your Tranche 2 for Law Firms project, our financial crime and regulatory team would be pleased to discuss this with you.
Frequently asked questions
Does Tranche 2 for Law Firms apply to every matter we handle
No. The regime applies when you provide specified designated services that AUSTRAC has identified as higher risk. Many legal activities will remain outside scope, but you must go through a structured assessment to be sure.
Will AUSTRAC expect perfection on day one
AUSTRAC’s regulatory expectations emphasise a risk based approach and recognise that Tranche 2 entities are starting from different maturity levels. The key is to show that you understand your obligations, have a credible plan and are implementing it in good faith.
Can we rely entirely on our bank or trust account provider to manage AML CTF risk for us
No. While banks and payment providers have their own obligations, your firm will have direct responsibilities under the AML CTF Act for any designated services you provide. Tranche 2 for Law Firms is about the risk in your own services and client relationships.
"Tranche 2 marks one of the most significant shifts in the legal profession’s regulatory setting in decades. Law firms must now think and operate like financial gatekeepers. They are expected to build risk awareness into every client interaction, transaction, and matter workflow."
Tranche 2 for Law Firms will change the way many Australian legal practices think about client acceptance, matter management and trust accounting. With a clear understanding of the reforms, the right use of AUSTRAC guidance and a structured implementation plan, it is entirely possible to meet these obligations in a way that strengthens, rather than weakens, your firm’s reputation for integrity and client care.
