Tranche 2 vs Tranche 1: The key differences

When people talk about Australia's AML/CTF reforms, you'll often hear references to ‘Tranche 1’ or, more likely, ‘Tranche 2’. But what do these terms actually mean? With Tranche 2 now in effect, many businesses across real estate, property, accounting and more are trying to understand how it differs from the existing AML/CTF regime and why these reforms have now brought their business into the AUSTRAC fold.

It’s important to first start by understanding that Tranche 2 doesn't create an entirely new AML/CTF system. Instead, it is expanding upon and modernising Australia's existing framework, bringing thousands of additional businesses into the regime while also updating the rules that have applied to Tranche 1 businesses for many years. Here's everything you need to know about Tranche 1 and Tranche 2, how they differ, and what the changes mean for your business.

What was Tranche 1?

When the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 was introduced, it applied to businesses considered most vulnerable to money laundering and terrorism financing. This first stage of Australia's AML/CTF regime became known as ‘Tranche 1’. Tranche 1 primarily covered financial service providers and other businesses that regularly deal with money or facilitate financial transactions, including:

• Banks, credit unions and building societies
• Casinos & bookmakers
• Remittance service and foreign exchange providers
• Some financial advisers and investment businesses

These businesses became known as reporting entities and were required to implement AML/CTF Programs, verify their customers, monitor transactions, report certain activities to AUSTRAC and maintain detailed compliance records. For almost two decades, these obligations applied only to businesses captured under Tranche 1 - typical large, national corporations with big budgets for this type of compliance work.

What is Tranche 2?

Tranche 2 extends Australia's AML/CTF regime to additional professions that have long been recognised internationally as being vulnerable to money laundering. Rather than creating a separate set of obligations, Tranche 2 largely applies the same AML/CTF framework to newly regulated industries.

At the same time, the recent AML reforms also modernise the existing AML/CTF legislation for Tranche 1 businesses, creating a more consistent, contemporary compliance framework across all reporting entities.

Why is Australia introducing Tranche 2?

Australia has been under increasing pressure for many years to expand its AML/CTF regime. The Financial Action Task Force (FATF) is the international body responsible for setting global anti-money laundering standards, and has repeatedly recommended that Australia regulate professions involved in high-value transactions and company formation.

Many comparable countries such as the UK and New Zealand introduced similar reforms years ago.

The introduction of Tranche 2 regulations strengthens the integrity of Australia’s financial system, by making it more difficult for criminals to exploit legitimate businesses to launder the proceeds of crime or finance terrorism. The reforms also help ensure Australia's AML/CTF framework aligns more closely with international best practice.

The key differences at a glance

While Tranche 2 represents a significant change for newly regulated businesses, the underlying compliance obligations are largely consistent with those already familiar to Tranche 1 reporting entities.

In short, Tranche 2 is not so much about creating new compliance requirements, as it is extending existing AML/CTF obligations to additional sectors that have historically sat outside the regime.

Which industries are covered by Tranche 2?

Tranche 2 introduces AML/CTF obligations for businesses providing certain designated services within the following industries:

• Real estate professionals
• Conveyancers and settlement agents
• Lawyers
• Accountants
• Trust and company service providers (TCSPs)
• Dealers in precious metals and precious stones

It's important to note that not every business operating within these professions will automatically become a reporting entity. Your obligations depend on whether you provide a ‘designated service’ as defined under the AML/CTF legislation. 

For example, a criminal lawyer who does not offer designated services such as property conveyancing, managing client funds or body corporate creation or restructuring may likely not be impacted by the new reforms. However, a family lawyer who operates a conveyancing arm would (and they would need to determine on a case-by-case basis whether a specific transaction involves a ‘designated service’ for the purposes of AML compliance. Put simply: whether the legislation applies depends on the specific services your business provides.

When does Tranche 2 come into effect?

The Tranche 2 reforms officially commenced on 1 July 2026. By this date, businesses providing designated services were expected to have:

• Enrolled with AUSTRAC (where required)
• Completed a business-wide ML/TF Risk Assessment and developed a resulting AML/CTF Program
• Established customer due diligence procedures
• Implemented ongoing monitoring processes
• Delivered AML/CTF training to relevant staff
• Put appropriate record-keeping procedures in place

While the commencement date has now passed, compliance is not a one-off project. AML/CTF obligations continue throughout the life of your business and require ongoing monitoring, regular reviews and continual improvement.

What should businesses be doing now?

With Tranche 2 now in effect, the focus has shifted from implementation to practical day-to-day compliance. Businesses should be asking themselves questions such as:

• Is our AML/CTF Program working as intended?
• Are staff consistently following our procedures?
• Are customer risk assessments being completed appropriately?
• Are we documenting our decisions and maintaining adequate records?
• Are we prepared if AUSTRAC requests evidence of our compliance?

Many businesses are also beginning to refine their internal processes as they encounter real-world scenarios for the first time. Questions about trusts, beneficial ownership, ongoing customer due diligence, Source of Funds and Enhanced Customer Due Diligence are becoming far more common than they were before commencement.

If you're still building your compliance framework or want to ensure you've covered all the essentials, we've put together a practical guide outlining the key steps businesses should be taking. Be sure to download our Operational Readiness Checklist.

1 July 2026 was the starting line, not the finish line

Although the introduction of Tranche 2 represents one of the biggest changes to Australia's AML/CTF regime in almost twenty years, it's important to remember that these reforms build upon an existing framework rather than replacing it. The core principles of understanding your customers, assessing risk and monitoring ongoing relationships have now been extended to thousands more Australian businesses.

As compliance matures, success won't be measured by simply having an AML/CTF Program sitting on the shelf, gathering dust. It will be measured by how consistently your business applies it in everyday practice. easyAML helps businesses simplify AML/CTF compliance by bringing your AML Program, customer due diligence, risk assessments, ongoing monitoring and record keeping together in one easy-to-use platform, supported by a team of local AML specialists every step of the way.

Get started for free today. There are no lock-in contracts, no credit card required and no commitments.