AML/CTF Transitional Rules Are Now in Effect: What AFSLs Need to Know

The Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Transitional Rules 2026 have now been made into law and are in effect from 31 March 2026. Developed jointly by the Department of Home Affairs and AUSTRAC, these rules are designed to support a smooth implementation of the broader AML/CTF reforms by giving some reporting entities additional time to update their systems, processes, and AML/CTF programs.

It is important to note that the transitional arrangements are not uniform. Different rules apply depending on your enrolment date and the designated services you provide. For a detailed summary of the changes, visit the AML/CTF Transitional Rules 2026 page on the AUSTRAC website.

What Are the Transitional Rules?

The transitional rules address several key areas of the AML/CTF reforms, providing structured relief while maintaining the integrity of Australia's financial crime prevention framework. The rules are designed to ensure that reporting entities can meet their obligations without being overwhelmed by the pace of change, while still making meaningful progress toward full compliance.

Key Areas Covered by the Transitional Rules

The transitional rules touch on several significant areas for current and newly regulated reporting entities. Here is a breakdown of the most important changes:

Transitional Period for Initial Customer Due Diligence (CDD)

Current reporting entities (REs) enrolled on 30 March 2026 can continue to use applicable customer identification procedures (ACIP) instead of the new initial CDD obligations until 31 March 2029.

However, from 1 July 2026, REs can only continue using ACIP if they have documented transitional policies in their AML/CTF programs that specify which customer classes will remain on ACIP and the date by which each class will transition to the new initial CDD framework.

New ongoing CDD obligations apply to all customers from 31 March 2026, regardless of whether ACIP is being used for initial CDD.

Registration Roll-Over for Existing Reporting Entities

If you are already enrolled with AUSTRAC, you do not need to re-enrol. Entities already registered as digital currency exchange providers will automatically be registered as virtual asset service providers (VASPs) from 31 March 2026. There is no need to re-apply as the transition occurs automatically.

Deferred Obligations for New Virtual Asset Services

AML/CTF program, CDD, reporting, and record-keeping obligations for new registrable virtual asset designated services (excluding item 50A exchange services) are deferred until 1 July 2026.

This provides time for newly regulated virtual asset businesses to build systems, train staff, and implement compliance frameworks. Obligations for item 50A services (exchange between virtual assets and fiat currency) apply from 31 March 2026.

IFTI Reporting Preserved Until Graduated Transition to IVTS Reporting

Existing IFTI reporting obligations are preserved until 31 March 2029, when a graduated transition to international value transfer service (IVTS) reporting begins.

Eligible entities may also nominate a substitute transition date of up to 30 September 2029, provided they notify AUSTRAC in early 2029.

Additionally, reporting of value transfers involving unverified self-hosted virtual asset wallets is not required until 31 March 2029.

Extended Period for Notifying AUSTRAC of an AML/CTF Compliance Officer

Existing reporting entities enrolled on 30 March 2026 have until 30 May 2026 to notify AUSTRAC of their AML/CTF compliance officer.

Newly regulated businesses must notify AUSTRAC by the later of 14 days after enrolment or 29 July 2026. After these transitional periods expire, the standard 14-day notification requirement applies.

Staggered Initial Independent Evaluations

To avoid particular sectors or types of businesses all having their first independent evaluations due at the same time, the transitional rules introduce staggered deadlines.

For existing reporting entities, the first independent evaluation is due by the later of four years after their most recent independent review or 31 March 2027.

Newly regulated entities have deadlines ranging from 30 June 2029 to 31 December 2030, determined by the last two digits of their AUSTRAC account number (AAN).

Financial Advisers Who Also Provide Tranche 2 Designated Services

Financial advisers holding an Australian financial services licence (AFSL) who also provide tranche 2 designated professional services will only need to apply full AML/CTF program obligations to those tranche 2 services from 1 July 2026, not from 31 March 2026.

This is directly relevant to AFSLs that provide services such as accounting, conveyancing, or other professional services that have been newly captured by the reforms.

What This Means for AFSLs (Practically)

While the transitional rules offer meaningful breathing room, they do not eliminate compliance obligations, they simply restructure the timeline for some of them.

For AFSLs, particularly those who are current reporting entities or who are newly captured as tranche 2 entities, there are several practical implications to act on now.

Update Your AML/CTF Program Now - Before 1 July 2026

If you are a current reporting entity and intend to continue using ACIP for some or all customer classes after 1 July 2026, you must document transitional policies in your AML/CTF program by that date.

Those policies must identify which customer classes will remain on ACIP and when each class will transition to the new initial CDD requirements. Failing to do this means you lose the ability to rely on ACIP from 1 July 2026. If you are a financial adviser also providing tranche 2 professional services, your window to prepare a full AML/CTF program for those services closes on 1 July 2026.

Comply with New Ongoing CDD Obligations from 31 March 2026

The transitional relief for initial CDD does not extend to ongoing CDD. The new ongoing CDD obligations have applied to all customers from 31 March 2026, regardless of whether the entity is transitioning from ACIP.

AFSLs should confirm their monitoring frameworks, customer review processes, and transaction monitoring policies are already aligned to the new ongoing CDD requirements. This is not an area where the transitional rules provide flexibility.

Notify AUSTRAC of Your AML/CTF Compliance Officer by 30 May 2026

If you were enrolled on 30 March 2026, the transitional rules give you until 30 May 2026 to notify AUSTRAC of your AML/CTF compliance officer.

This is an administrative step that should be straightforward to complete, but it is a firm deadline. AFSLs should confirm who holds this role and ensure that the notification has been, or will be, submitted in time. After this transitional period, the standard 14-day window applies.

Confirm Your Independent Evaluation Deadline

If you are an existing regulated entity, check when your last independent review was conducted.

Your first independent evaluation under the new framework is due by the later of four years after that review or 31 March 2027.

Ensure your AML/CTF program's evaluation schedule is updated to reflect this deadline.

Leaving this to the last minute creates risk, particularly given the expanded scope of the new independent evaluation, which now covers your entire AML/CTF program rather than just Part A.

Continue IFTI Reporting and Plan for the 2029 Transition

If your AFSL is required to submit IFTI reports, there is no change right now and you must continue doing so under the existing regime until at least 31 March 2029.

However, AFSLs involved in international funds transfers should begin planning for the eventual transition to IVTS reporting.

AUSTRAC has indicated it will release further guidance on the transition process in early 2029, but building awareness and preparing systems now will prevent a rush closer to the deadline.

Review Foreign Branch and Subsidiary Obligations

AFSLs with overseas operations should review whether any foreign laws prevent compliance with AML/CTF obligations under section 236A of the Act.

The transitional rules provide a grace period for notifications relating to conduct that occurs on or before 30 June 2026, allowing notice to be provided after the fact (but still by 30 June 2026).

After that date, notifications must be made before the relevant conduct occurs. AFSLs should assess their overseas branches and subsidiaries now to identify any potential compliance conflicts.

What AFSLs Should Do Now

Review Your AML/CTF Program

Update for transitional CDD policies (if relying on ACIP post-1 July 2026), new ongoing CDD obligations, compliance officer notification, and your independent evaluation schedule.

Notify AUSTRAC of Your AML/CTF Compliance Officer

If enrolled on 30 March 2026, ensure your compliance officer notification is lodged with AUSTRAC by 30 May 2026.

Determine Your Independent Evaluation Deadline

Check when your last independent review occurred and calculate your first independent evaluation due date. Update your AML/CTF program to document the evaluation frequency and upcoming deadline.

Note for Item 54 Only Entities (AFSLs)

If your AFSL only provides arranging services under item 54 of the Act (and held your licence before 31 March 2026), there are some important exemptions that apply while you remain item 54 only.

First, item 54 only entities are not required to conduct ongoing CDD. The new ongoing CDD obligations that apply to other reporting entities from 31 March 2026 do not extend to item 54 only entities, so you are not required to apply the new ongoing monitoring and review requirements to your customers.

Second, item 54 only entities are not required to obtain an independent evaluation. The new independent evaluation obligations do not apply while you remain an item 54 only entity.

However, these exemptions are contingent on your status. If you also provide tranche 2 designated services, from 1 July 2026 you will no longer be an item 54 only entity. Once that occurs, the exemptions from ongoing CDD and independent evaluation cease to apply, and the full obligations that apply to tranche 2 reporting entities will apply to you from that date..

Prepare Your Tranche 2 AML/CTF Program (if applicable)

If you are a financial adviser providing tranche 2 professional services, use the time until 1 July 2026 to develop a fit-for-purpose AML/CTF program for those services. Do not wait until the deadline — building a compliant program requires careful risk assessment and policy development.

Stay Across AUSTRAC Guidance Updates

AUSTRAC is actively updating its guidance to reflect the transitional rules and amendments to the Rules. Monitor the latest guidance updates page on the AUSTRAC website, which documents all changes as they are made. Guidance updates in this period will be frequent, so staying informed is itself part of good compliance practice.

Bottom Line

The AML/CTF Transitional Rules 2026 represent an important bridging framework that acknowledges the real-world complexity of implementing major regulatory reform.

For AFSLs, the rules provide useful flexibility around initial CDD, compliance officer notifications, independent evaluations, and the timing of obligations for newly captured tranche 2 services. However, this flexibility is conditional and time-limited.

The transitional rules do not represent a pause on the reforms.

They set a structured path toward full compliance and AUSTRAC will be monitoring progress closely.

AFSLs that treat the transitional period as an opportunity to build robust frameworks, rather than as an excuse to delay action, will be best positioned for what comes next.

Need Support?

If you would like assistance navigating the AML/CTF Transitional Rules 2026, whether that means reviewing your current AML/CTF program, developing transitional CDD policies, preparing for your first independent evaluation, or building out a tranche 2 compliance framework, the team at 3Lines Consulting can help.

We work closely with AFSLs to translate complex regulatory change into practical, fit-for-purpose compliance frameworks so you can meet your obligations with confidence.

Contact us here.