Quick Overview of ADIs in Financial Systems
- Plain English meaning: A financial institution licensed by APRA to carry on banking business, including taking deposits from the public.
- Why it matters in AML CTF compliance: ADIs are common counterparties in payments, settlements, trust account flows, and source of funds evidence. Understanding ADIs helps you interpret risk properly.
- Most relevant to Tranche 2 entities: Real estate, law firms, accountants, and TCSPs that frequently receive funds from banks and rely on bank documents as evidence.
What is an authorised deposit taking institution
AUSTRAC defines an authorised deposit taking institution, often shortened to ADI, as a financial institution licensed by the Australian Prudential Regulation Authority to carry on banking business, including accepting deposits from the public. This includes banks, building societies, and credit unions. AUSTRAC also notes that for AUSTRAC’s purposes, the Reserve Bank of Australia and state banks are also ADIs.
In supporting legislation, the Banking Act 1959 defines authorised deposit taking institution as a body corporate where an authority under subsection 9(3) is in force. It also defines banking business and makes clear that conducting banking business without proper authority is an offence.
Why this term matters for Tranche 2 compliance
Tranche 2 businesses often interact with ADIs in ways that can create false comfort. It is common to hear, the money came from a bank so it must be clean. That assumption is risky.
In reality, an ADI can be part of the movement of funds without knowing the full context of a customer’s activity in a Tranche 2 business. Your firm still must assess the customer relationship, the purpose of the transaction, and whether the behaviour makes sense. This is particularly relevant in:
Property matters where large amounts move through bank accounts and settlement platforms
Legal matters involving trust accounts and client monies
Accounting and structuring services where clients move funds to establish companies, trusts, or investments
TCSP work involving nominee arrangements or multi layered ownership structures
The reform direction reinforces the move away from a simple paperwork mindset towards a risk focused approach. The Attorney General’s Department explains that the Amendment Act updates AML CTF program requirements to focus on identifying, assessing and mitigating money laundering, terrorism financing and proliferation financing risk, replacing a simple check box approach.
How ADIs show up in practical compliance
Source of funds and transaction evidence
Customers often provide bank statements, deposit confirmations, or transfer receipts. These can be useful. They are not enough on their own. Good practice is to connect bank evidence to a credible explanation of where the funds came from and why the transaction is occurring.
Payment flows and third party funding
A payment from an ADI account does not guarantee the payer is the real customer, or that the funds are not being layered. Third party payments, rapid movement through multiple accounts, and inconsistent funding patterns remain red flags even when every step touches an ADI.
Understanding regulated counterparties
Knowing whether a counterparty is an ADI can help your staff classify the counterparty correctly, record it consistently, and understand what information may be available through standard banking channels.
Real-World Examples of ADIs
Legal references and official sources
AUSTRAC glossary entry: authorised deposit taking institution.
Banking Act 1959 definitions of authorised deposit taking institution and banking business.
APRA guidance confirming that banking business requires an ADI licence and explaining the licensing framework.
Reform direction and commencement staging in AUSTRAC guidance and Australian Government reform pages.
Best practice for Tranche 2 entities using ADI related evidence
Do not treat bank involvement as a risk waiver
Bank involvement can support your understanding of how funds moved. It does not remove your obligation to assess the relationship and the purpose.
Ask the right questions about the bank account holder
If funds come from a third party account, record who that person or entity is and why they are paying. If the explanation is weak, escalate.
Validate documentation quality
Bank statements and letters are frequently manipulated. Define what you accept, such as statement periods, account identifiers, and evidence of ownership. Where risk is higher, require direct corroboration.
Connect funds to the customer story
A good file explains the narrative. Who is paying. Where did the funds come from. Why now. Why this amount. Why this structure. This is the type of reasoning that supports suspicious matter escalation decisions.
Common challenges
Over reliance on bank statements without understanding the underlying activity
Staff do not recognise when a payment is from a third party
Firms confuse proof of payment with proof of legitimacy
Inconsistent recording of counterparty classification across offices
Final Notes on Authorised Deposit-Taking Institutions
Authorised deposit taking institution is a foundational term because Tranche 2 businesses often rely on bank evidence. The right approach is balanced. Use ADI information as useful context, but keep your risk judgement independent and evidence based, especially as Australia moves into the reformed regime from 2026.
“Bookmakers sit at a natural convergence point for cash, speed and anonymity. AUSTRAC’s focus reflects the reality that wagering platforms can be misused as value transfer mechanisms if risk controls are not actively applied.”
