AML for legal firms: the rules and the risk

KYC and AML for legal firms: Staying compliant without slowing down business

July 2026 is fast approaching, and that means major Anti-Money Laundering (AML) regulatory shifts are just on the horizon with AUSTRAC’s new Tranche 2 rules. For many reporting entities – including legal firms – this means robust AML programmes and Know Your Customer (KYC) checks will need to be in place to mitigate any reputational, financial or operational risk. Get yourself prepared now and protect your business and reputation.

What is KYC and AML?

Anti-Money Laundering (AML) refers to the broader framework of laws, regulations and monitoring systems which are designed to detect and prevent money laundering, financial terrorism and other financial crimes.

Know Your Customer (KYC) is the process of identifying and verifying a client’s identity before you provide them with any services. Often this process involves checking ID documents, confirming addresses and screening clients against PEP, sanctions and adverse-media lists. APLYiD can have this step covered in under 90 seconds, with guided digital biometrics that automatically run secure checks.

What are the AUSTRAC requirements?

In a nutshell, AUSTRAC requirements can be broken down into five major components:

1. Develop and maintain a robust AML/CTF program tailored to your business, and make sure your staff stick to it.
2. Conduct initial and ongoing customer due diligence. This should be done before providing services and includes risk assessments, especially for politically exposed persons (PEPs) and other high risk individuals.
3. Report certain transactions and suspicious activities.
   1. Threshold transaction reports (TTR) for transfers of A$10,000 or more in cash (or the foreign currency equivalent) should be submitted to AUSTRAC 10 business days after the date of the transaction.
   2. International funds transfer instruction reports (IFTIs) for transfers of funds of any value into or out of Australia should be submitted to AUSTRAC within 10 business days after the transfer instruction is sent or received.
   3. Suspicious Matter Reports should be submitted through AUSTRAC within 24 hours for terrorism concerns and three business days for any other criminal activities.
4. Make and store records safely and securely, for at least seven years. At a minimum you should keep records for:
   1. Transactions
   2. Client identification procedures
   3. Your AML/CTF program.
5. Report on, stress test and update your programme.
   1. AUSTRAC can and do audit reporting entities, so running your own mini audits first is a great way to ensure everything is up to scratch before the auditors come.
   2. You may also be required to submit a compliance report when requested by AUSTRAC. It’s a good idea to ensure your programmes and processes are well documented to make this easy.

For more guidance on what your obligations are and how to cut out the guesswork, you can download our AML guide here.

What are the consequences?

Not meeting your AML obligations can have some pretty serious consequences, damaging your business’ reputation, slowing down operations and, in extreme cases, ending in civil penalties and enforcement actions.

Some of the actions AUSTRAC can take if reporting entities are not complying with AML and CTF regulations include:

• Enforcement Actions:
  • Civil penalty orders can be dealt out by the Federal Court with penalties of up to 20,000 penalty units ($6.6 million AUD), or up to 100,000 penalty units ($33 million AUD) for body corporates.
  • Enforceable undertakings are a written commitment to AUSTRAC which outline how you will comply with the AML/CTF act and these specific actions must be complied with.
  • Infringement notices can be issued for breaching specific parts of the AML/CTF act regarding KYC, reporting, enrolling and registering with AUSTRAC, providing information to AUSTRAC and record keeping.
  • Remedial directions can be issued by AUSTRAC and instruct you in writing to take specific action to comply with certain parts of the AML/CTF Act.
• Appoint external auditors to review your AML/CTF programmes and processes, or run AML/CTF risk assessments.
• Refuse, cancel or suspend registration of remittance service providers and digital currency exchange providers.

What does this mean for my practice?

For most Australian legal firms this means rethinking your everyday workflows, which could slow things down. Manual KYC checks create friction for your clients at the worst moment, and storing things yourself can lead to file mismanagement or inconsistencies between staff.

Some key things to watch out for are:

• Chasing IDs: Endless back-and-forth with clients for the right documents can stall things and frustrate staff.
• Client drop-off: If onboarding feels clunky or intrusive, clients might abandon the process, which could mean a loss of billable work for your firm.
• Rework: Incorrect or incomplete checks force teams to redo verification steps, wasting time and increasing compliance risk. Not to mention it can come across unprofessional or unorganised if you need to chase a client for additional documents.
• Staff inconsistency: Different folders, filing systems and processes between staff could lead to errors and compliance breaches, plus it could make audits a painfully slow process.

AML might be sounding like a nightmare, but it doesn’t have to be. Putting in the right tools - like APLYiD - can streamline your internal processes and creates a fast and polished experience for your clients.

How can APLYiD help?

Firms that embrace technology‑enabled compliance will not only meet AUSTRAC’s requirements but also strengthen client trust, reduce operational risk, and future‑proof their practice. APLYiD takes all the guesswork out of AML so you can onboard clients, monitor risk and store records all from one, secure platform.

• Onboard: Request the right documents every time with guided document collection
• Verify: Verify and easily re-verify clients using the relevant biometric AML and KYC - with results back in less than 90 seconds.
• Manage: View and manage all AML activities and risks consistently - for every client - in one place.
• Monitor + Relax: Set risk levels, automate review alerts and set up ongoing monitoring.

No unnecessary complexity. No admin overload. No training needed. Just simple AML without the headaches. Whether you're running a solo firm or managing a small team, APLYiD makes compliance easy so you can focus on what you do best.