Ready or Not: Are Law Firms Prepared for Australia’s AML Reforms?
After years of delay, Australia is finally moving forward with Tranche 2 of its anti-money laundering (AML) reforms. On 1 July 2026, lawyers, accountants and real estate agents will be regulated under the AML/CTF Act. While this long-awaited legislation brings Australia in line with global standards, it also raises a pressing question for law firms: are they ready?
The short answer, based on recent data and international lessons, is; not quite.
Confusion turns into urgency
According to Actionstep’s 2025 Australian midsize law firm priorities report, 75% of midsize law firm professionals say they feel confident their firm can comply with AML requirements. But confidence is not the same as capability. Only 38% are using automation tools in any capacity. When you consider how pivotal process automation and digital client verification are to effective AML compliance, this signals a readiness gap.
The government has provided a two-year notice period, signaled a grace period for newly regulated entities and committed to developing guidance and educational materials to support the transition. But as we have seen in jurisdictions like the UK and New Zealand, building a compliant AML program takes significant time, training and operational change.
Lessons from overseas
Australia is late to this regulatory party. Lawyers in the UK have been under AML laws since 2007. There, even minor failures to maintain up-to-date client due diligence or risk assessments can lead to substantial penalties, including fines equal to 2% of a firm’s revenue.
Firms in the UK and EU quickly learned that AML is not just a one-time check at client onboarding. It requires ongoing risk assessments, monitoring and a documented AML program. Many now employ dedicated compliance officers or money laundering reporting officers (MLROs, or AMLCOs in ANZ), even in smaller practices.
Closer to home, New Zealand introduced AML obligations for law firms in 2018. Initially, many firms were caught off guard by the depth of due diligence expected. But over time, AML became just another part of doing business. NZ firms found that client education helped smooth the transition. They explained early on why extra identity checks or source of funds enquiries were needed and clients adapted.
Are Australian law firms prepared?
In short, not yet, but they’re gearing up. Most firms have not voluntarily implemented comprehensive AML programs. Unlike banks or NZ lawyers, a typical Australian firm had no legal obligation to verify a client’s ID or scrutinise a source of funds. Some larger firms with international exposure have proactively adopted elements of AML compliance. Top 100 law firms are already in supplier negotiations but most small and midsize domestic firms are only starting to move now.
The good news is that the legal industry is aware of the coming change. A Law Council of Australia review in 2023 actually found the profession has been “proactively working to mitigate the risk” of money laundering in some ways.
For example, many firms already avoid handling large sums of client money or accepting cash. However, the Law Council also noted that lawyers were “not routinely making enquiries about a client’s source of wealth”, making it difficult to verify the provenance of funds. In the absence of a legal mandate, most firms haven’t felt empowered to ask probing questions. This will change under Tranche 2 reforms.
So while firms are optimistic, there’s still a lot of practical work ahead to turn that confidence into capability.
What’s holding firms back?
Time and resources are the biggest barriers. Actionstep’s report shows that 74% of law firm professionals cite workload and time limitations as a primary challenge in delivering quality client service. Only 38% are using automation tools to address this.
AML compliance will require law firms to collect, verify and record detailed client information, sometimes including proof of wealth, not just ID. For time-poor firms, this could feel like an administrative mountain.
There is also a cultural challenge. Lawyers are trained to prioritise client confidentiality. The idea of reporting clients to AUSTRAC can feel like a betrayal of trust. Even with legal professional privilege protections, many practitioners are understandably cautious.
What’s coming in practice
To comply with AML obligations, firms will need to:
- enrol with AUSTRAC
- develop and maintain an AML/CTF program tailored to their business
- appoint an AML compliance officer
- conduct a firm-wide risk assessment
- conduct initial and ongoing customer due diligence
- report certain transactions and suspicious activities
- make and keep records
- train staff on AML obligations
This is not a minor policy update. It is a full operational shift in how firms onboard clients, manage risk and maintain records. These changes will need to be built into workflows and practice management systems.
What firms can do now
With the 2026 deadline on the horizon, now is the time for action. Here are six things Australian law firms can start doing now:
- Educate yourself and your team. Sign up to Tranche 2 reform educational programs, run CPD sessions and make sure partners and support staff understand what’s changing.
- Audit your processes. Map out how you currently onboard clients. Identify where new checks and documentation will be needed.
- Start drafting your AML/CTF program. Even a simple draft helps clarify priorities and gaps.
- Explore technology. Look into digital ID tools, client onboarding automation and tools to log due diligence and risk assessments. Use a tech buyers guide to understand the tech landscape and what you actually need.
- Talk to your clients. Build AML messaging into your engagement process so clients are not surprised by requests for more information.
- Collaborate with peers. Start conversations within your networks. Everyone is navigating this transition together.
The opportunity in compliance
Yes, AML reform adds complexity. But it also offers an opportunity for firms to modernise their systems, improve client vetting and reduce reputational risk. Strong compliance processes can be a differentiator, especially for midsize firms looking to build trust with banks, regulators and high-value clients.
Final thoughts
Tranche 2 AML obligations are no longer a ‘maybe’. Law firms must be compliant by 1 July 2026. Australian law firms, particularly midsize law firms , have a window to prepare without the pressure of immediate enforcement. But delay could lead to disruption.
Firms that act now, learning from the UK, NZ and others, can adapt smoothly and grow stronger in the process. AML is not just a box to tick. It’s a chance to protect your firm, your clients and your reputation.
The question is not just “are you ready?” but “what are we doing now, to get there on time?”.
Heading
About First AML
This article is not only written from the perspective of a technology provider, but also from the lens of compliance professionals.
Prior to releasing Source, First AML’s orchestration platform, we processed over 2,000,000 AML cases ourselves. Understanding the acute problem that faces firms these days as they try to scale their own AML, is in our DNA.
First AML powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the CDD data lifecycle addresses time and cost challenges while improving the customer experience and minimising reputational and security risks.
