AUSTRAC's Item 54 Update: What Financial Advisers with Discretionary Authority Need to Know

On 12 June 2026, AUSTRAC updated its guidance on exemptions from AML/CTF obligations for businesses providing only item 54 designated services. For most financial advisers, this guidance appears routine. For advisers who exercise discretionary investment authority over client portfolios, including MDA operators, it is anything but.

The update clarifies a critical distinction that changes the compliance picture entirely for this cohort: if you manage client investments under a discretionary mandate, you are not providing an item 54 service. You are providing an item 3 professional designated service, and none of the item 54 exemptions apply.

With item 3 of table 6 commencing on 1 July 2026, this guidance lands with two weeks to spare.

What Item 54 Is and Why It Matters

Item 54 of table 1 in section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 applies when an AFSL holder makes arrangements for a person to receive another designated service. In practice, this is what most financial advisers do: they introduce clients to product issuers, help them complete application and rollover forms, and coordinate steps needed for a financial product to be provided. The actual product is provided by someone else.

AFSL holders providing only item 54 services have always been reporting entities under the AML/CTF regime. What item 54 status does, however, is reduce the scope of obligations that apply.

The Exemptions That Apply ... But Only If You Provide No Other Designated Services

If item 54 is the only designated service you provide, you are exempt from a significant number of AML/CTF obligations. You do not need to:

• notify your governing body in writing of updates to your ML/TF risk assessment

• maintain governing body oversight of ML/TF risk and compliance

• appoint an AML/CTF compliance officer

• conduct ongoing customer due diligence (CDD), including monitoring for unusual transactions or reviewing and updating customer information

• conduct personnel due diligence or AML/CTF training

• have an independent evaluation of your AML/CTF program every three years

• report threshold transactions

• submit an annual compliance report

These are substantial carve-outs. An AFSL holder providing only item 54 services still needs to enrol with AUSTRAC, conduct a ML/TF risk assessment, develop AML/CTF policies covering initial CDD, carry out initial CDD before providing a designated service, document its AML/CTF program, report suspicious matters, and keep records. But the obligations that remain are materially lighter than the full regime.

The problem is the word "only." These exemptions apply if item 54 is the only designated service provided. If any other designated service is also provided, the exemptions fall away entirely.

The MDA Problem: Discretionary Authority Triggers Item 3

AUSTRAC's updated guidance addresses the interaction between item 54 and item 3 of table 6 directly, and the conclusion will matter to every adviser operating under a discretionary mandate.

Item 3 of table 6 applies where a person receives, holds and controls (including disburses), or manages, a person's money or other property as part of assisting that person in the planning or execution of a transaction, or otherwise acting for or on behalf of a person in a transaction, where their actions directly advance the transaction.

AUSTRAC's guidance uses a worked example involving a wrap account and a financial adviser with discretionary investment authority. The distinction it draws is stark.

Scenario A: passing on client instructions. The client gives a specific instruction to transfer funds. The adviser completes and submits the request form as instructed. The adviser is making arrangements for the client to receive a designated service. This is item 54.

Scenario B: discretionary authority over investment decisions. The client gives the adviser authority to make investment decisions on the client's behalf within agreed investment principles. The adviser decides when to buy and sell and instructs third parties to carry out those decisions. The adviser manages the client's money or other property and has discretion over investment decisions. This activity is not limited to arranging for another person to provide a designated service. This is item 3.

AUSTRAC is explicit: the fact that the adviser previously made item 54 arrangements to set up the wrap account does not mean the ongoing discretionary management is also item 54. They are separate activities. Once the adviser is providing item 3, they are no longer providing only item 54, and the item 54 exemptions do not apply to anything, including the item 54 activity itself.

For MDA operators and advisers managing portfolios under a discretionary mandate, this means the reduced obligation framework is not available. Full AML/CTF obligations apply.

Carve-Outs: When CDD Is Not Required

The guidance includes one CDD carve-out that applies to certain item 54 arrangements. An AFSL holder does not need to carry out CDD if the item 54 designated service relates to making arrangements for a person to receive one of the following:

• accepting payment of the purchase price for a new pension or annuity

• accepting a superannuation contribution, rollover or transfer

• accepting a retirement savings account (RSA) contribution, rollover or transfer

This exemption applies to CDD obligations only. All other AML/CTF obligations, including suspicious matter reporting, continue to apply.

Where Authorised Representatives Stand

Item 54 applies to the holder of the AFSL. Where an AFSL holder provides item 54 services through authorised representatives, the AFSL holder is the reporting entity for those services. Authorised representatives who only provide item 54 services on behalf of an AFSL holder are not themselves reporting entities.

Where an authorised representative separately provides a designated service other than item 54, including item 3 services involving discretionary investment management, they will be a reporting entity in their own right for that service, and the item 54 exemptions will not apply to them.

The AFSL holder remains responsible for meeting AML/CTF obligations for the item 54 services it provides, including those provided through authorised representatives. Authorised representatives must follow the AFSL holder's AML/CTF program as it applies to the service.

Full AML/CTF Obligations: What Applies If You Are Not Item 54-Only

For advisers providing item 3 alongside item 54, which includes most MDA operators, the full suite of AML/CTF obligations applies:

• Enrolment with AUSTRAC

• A documented ML/TF risk assessment, approved by senior management

• An AML/CTF program covering initial and ongoing CDD, customer risk assessment, and procedures for managing ML/TF risk

• Initial CDD before providing a designated service

• Ongoing CDD including monitoring for unusual transactions and reviewing or updating customer information

• Appointment of a fit and proper AML/CTF compliance officer

• Personnel due diligence and AML/CTF training for relevant roles

• Suspicious matter reporting

• Threshold transaction reporting

• Record-keeping

• Independent evaluation of the AML/CTF program at least once every three years

• Annual compliance reporting to AUSTRAC

• Governing body notification and oversight of ML/TF risk and compliance

Practical Preparation: What to Do Now

1. Audit your service activities against item 54 and item 3.

The question is not whether you hold an AFSL; it is what you actually do. If you make investment decisions at your own discretion, even within agreed parameters, review this guidance carefully.

2. If you operate under a discretionary mandate, assume item 3 applies.

AUSTRAC's worked example makes clear that managing client money or property under discretionary investment authority takes you outside item 54. Do not assume the item 54 exemptions protect you.

3. Check your AML/CTF program scope.

If your program was built on the assumption that you are an item 54-only provider, it will not meet the full obligations that apply to item 3 reporting entities. Key gaps are likely to be ongoing CDD, compliance officer appointment, threshold transaction reporting, and the annual compliance report.

4. Address authorised representative arrangements.

Where advisers in your network exercise discretionary investment authority, consider whether they are separately providing item 3 services and whether they are reporting entities in their own right.

5. Review reliance arrangements with product providers.

Reliance agreements between AFSLs and product providers on initial CDD are standard practice, but their interaction with the new regime and with the transitional rules requires careful review.

6. Document everything.

Whether or not the item 54 exemptions apply, your ML/TF risk assessment, AML/CTF policies, initial CDD procedures and program documentation must exist and be maintained.

Key Dates

31 March 2026 - Reformed AML/CTF Act commenced for existing reporting entities, including existing AFSL holders providing item 54 services.

1 July 2026 - Item 3 of table 6 (professional designated services) commences. From this date, financial advisers exercising discretionary investment authority are providing item 3 alongside item 54, and the item 54 exemptions no longer apply.

29 July 2026 — Deadline for newly regulated businesses to notify AUSTRAC of their AML/CTF compliance officer.

AUSTRAC's guidance is general in nature and notes that whether a designated service applies depends on the specific activities undertaken in each case. This post is a summary of AUSTRAC's published guidance and is not legal advice. Advisers and licensees should seek independent legal advice on how the framework applies to their specific circumstances.