Tranche 2 AML reforms: staggered independent evaluations on the table — lessons from New Zealand and the FATF lens
What’s new: The Department of Home Affairs’ transitional‑rules consultation proposes staggering the first independent evaluation deadlines for tranche‑2 entities (lawyers, conveyancers, accountants, real estate professionals, trust & company service providers, and dealers in precious metals/stones). Instead of everyone clustering at the three‑year mark after obligations commence on 1 July 2026, the first evaluations could be due 1 July 2030, 1 July 2031, or 1 July 2032 for different cohorts. Home Affairs notes the aim is to avoid a capacity crunch if most entities take the three‑year option and try to book evaluators simultaneously. The paper also flags a possible extension for tranche‑1 entities beyond 31 March 2029. Importantly, the Department acknowledges staggered deadlines could affect Australia’s FATF mutual evaluation, and seeks views on how best to split cohorts.
Why it matters: Australia’s FATF on‑site visit is scheduled for late 2026 under the 5th‑round methodology. During an evaluation, assessors look for both technical compliance and effectiveness, with the on‑site visit focusing heavily on whether measures are working in practice. If large parts of tranche‑2 have not yet undergone an independent evaluation by late 2032 (the year of the Brisbane Omplyics), that could influence how assessors view implementation under Recommendations 18 (independent audit function) and 23 (DNFBPs’ programmes/controls).
A quick refresher on Australia’s timetable (as proposed/announced)
Parliament passed the AML/CTF Amendment Act 2024, which extends the regime to tranche‑2 services and modernises rules. Tranche‑2 enrolment from 31 March 2026, with obligations to apply from 1 July 2026 for new entrants has been widely communicated.
Under the consultation paper, first independent evaluations would ordinarily be due within three years of obligations commencing (i.e., by 31 March 2029 for many) — but the transitional proposal is to stagger to 1 July 2030/2031/2032 for tranche‑2 cohorts to ease pressure on evaluator capacity.
Bottom line: Home Affairs is explicitly consulting on staggering independent evaluations (AU terminology), not delaying general compliance — entities will still need to design and operate AML/CTF programs from day one.
What happened in New Zealand when Phase 2 hit — and why Australia should pay attention
When New Zealand brought lawyers (2018), accountants (2018), real estate agents (2019) and other sectors into scope, independent audits of AML/CFT programs were required on a set cycle. Initially every two years, Cabinet moved in 2020 to extend the default audit cycle to every three years, and pushed back the first audit due date for real estate agents to 31 December 2021 to relieve pressure. Regulators also recognised that COVID‑19 disruptions affected audit delivery.
At the same time, New Zealand experienced a broader shortage of auditors (a talent and border‑restrictions issue) that forced Parliament to extend statutory reporting deadlines across parts of the public sector; the Auditor‑General publicly described the shortage and its impacts. While that announcement concerned financial statement audits, it illustrates the system‑wide constraints on audit capacity that existed during NZ’s early Phase‑2 years — precisely the kind of constraint Australia is trying to avoid for independent AML evaluations.
NZ supervisors have repeatedly urged firms to “plan ahead” for audits and clarified what counts as independent and appropriately qualified, reflecting the reality that qualified AML auditors/evaluators are a finite resource. Updated guidelines in May 2025 reiterated the three‑year audit cadence (or four years if a supervisor permits).
Takeaway for Australia: When large numbers of newly‑regulated DNFBPs hit their first evaluation window together, capacity bottlenecks are real — NZ’s timeline adjustments and messaging underline the need to stagger demand and book early.
Could staggering hurt Australia’s FATF result?
Potential risk: The consultation itself notes that staggered deadlines could impact compliance in advance of Australia’s FATF mutual evaluation, citing Recommendations 23.2 and 18.1(c) (the latter refers to an independent audit function as part of AML/CTF programs). If assessors arrive late‑2026 and many tranche‑2 firms won’t undergone an independent evaluation until the start of the next decade, that could limit evidence of effective implementation.
Nuance: FATF’s 5th‑round places strong weight on effectiveness — assessors want to see risk‑based controls operating and tested. However, FATF also recognises risk‑based approaches and transitional contexts. If higher‑risk sectors can demonstrate early, credible implementation, and supervisors can show risk‑focused oversight, the overall picture can still be positive even if some lower‑risk cohorts are scheduled for later evaluation waves.
Practical moves tranche‑2 firms should make now (especially real estate, legal, accounting & TCSPs)
Start before you’re asked. Don’t wait for your cohort assignment. Begin building your risk assessment, program, and CDD workflows now so they’re operating well ahead of 1 July 2026. AUSTRAC’s consultation materials and sector briefings outline what’s coming for tranche 2 and emphasise simplification with outcomes‑based rules — but substance still matters.
Plan an early “mock independent evaluation.” NZ supervisors repeatedly told firms to plan ahead; early dry‑runs help surface gaps long before the real evaluation window opens.
Lock in evaluator capacity. Build relationships with independent, appropriately qualified evaluators; verify independence (no program design by the same provider) and expertise in your sector. NZ’s updated audit guideline gives a clear picture of what “independent & appropriately qualified” means.
Evidence effectiveness. FATF assessors focus on results. Keep clear records of risk‑based decisions, training, monitoring, SAR/SMR decisioning, remediation, and board/senior‑management oversight. This aligns with FATF Rec. 18 & 23 expectations for programs and control frameworks in DNFBPs.
Mind the dates. Plan to enrol from 31 March 2026 and be operational by 1 July 2026. Even if your first independent evaluation is staggered later, your program must be live.
How should Home Affairs stagger cohorts? A practical proposal
Home Affairs asked for input on how to divide tranche‑2 entities so engagements are “appropriately spread over time.” Here’s a balanced, risk‑and‑capacity model:
Cohort A — 1 July 2029 (earliest):
Higher‑risk services and larger national networks (e.g., trust & company service providers, large real estate groups with high‑risk profiles, and law/accounting practices with significant cross‑border trust/company work). Front‑loading these helps FATF optics because higher‑risk DNFBPs will have demonstrably and locked in dates for their independent evaluations.Cohort B — 1 July 2031:
Medium‑sized practices and multi‑office agencies with mixed risk profiles.Cohort C — 1 July 2032:
Small, single‑office practices in lower‑risk segments, including smaller suburban agencies with predominantly domestic clientele (provided ongoing supervision shows their programs are operating effectively).
Layer across cohorts a geographic spread and evaluator specialisation (legal, real estate, accounting) to reduce simultaneous demand spikes and avoid the NZ‑style bottlenecks.
What Australia can lift directly from the NZ playbook
Be explicit and early about cycles. NZ moved from two‑year to three‑year independent audits and publicly flagged timelines/cohorts (e.g., the real estate extension to 31 Dec 2021). This transparency helped firms plan and reduced compliance‑date “cliff edges.”
Acknowledge market capacity and plan around it. New Zealand’s general auditor shortage was openly addressed via deadline extensions in other sectors — a reminder that policy design should map to real evaluator capacity.
Keep guidance current. NZ supervisors updated the Audit Guideline (May 2025) to clarify independence and qualification criteria, which helps prevent “shadow consulting” conflicts and elevates audit/evaluation quality.
What this means for the 2026 FATF visit
Technical compliance: Australia’s 2024 Act plus draft rules/consultations show strong progress toward covering DNFBPs and modernising obligations — a positive signal.
Effectiveness: The on‑site (late 2026) will look for programs operating and tested across higher‑risk DNFBP sectors. Ensuring Cohort A (above) has confirmed dates for their first independent evaluations by then would materially strengthen the narrative.
FAQ
What’s the difference between Australia’s “independent evaluation” and NZ’s “independent audit”?
They’re functionally similar: a qualified, independent party tests whether your AML/CTF program is adequate and effective. The terminology differs (evaluation vs audit), but the independence and competence expectations are clear in both jurisdictions.
Which tranche‑2 sectors are captured and when?
Tranche‑2 covers real estate professionals; lawyers/conveyancers; accountants; trust & company service providers; and dealers in precious metals/stones. Entities are widely expected to enrol from 31 March 2026 and comply from 1 July 2026 per the 2024 AML/CTF Amendment Act.
How often will evaluations occur?
The consultation paper references the first independent evaluation cadence and proposes staggered first‑round deadlines (1 July 2030/2031/2032). Ongoing frequency will be set by the Act/Rules and AUSTRAC guidance, with flexibility to trigger earlier evaluations based on risk or material changes, consistent with program‑assurance expectations under FATF Rec. 18/23.
Conclusion
These changes are still under consultation, so the safest course is to plan for an independent evaluation within three years of obligations commencing—and only adjust your timetable once any transitional rules are formally enacted. In practice, that means getting audit‑ready now: build and operate your AML/CTF program, capture evidence of effectiveness, and secure evaluation capacity early. Don’t wait for the cohort decision—high‑risk services and larger networks should move first.
If you’re a law, accounting, real estate or TCSP firm, book a free no-obligation 30‑minute Tranche 2 readiness call with AML Advisers this month. We’ll map your evaluation timeline, prioritise critical gaps, and place you on our independent evaluation waitlist (if you have created/implemented your own AML Program) so you’re not caught in a capacity bottleneck when dates are locked in. Start now—your future evaluation (and Australia’s FATF optics) will be much stronger if you can show your program is already working in practice.
