SMSFA raises concerns on how new AML laws will work in practice

The SMSF Association is concerned with how the transitional arrangements of the new anti-money laundering and counter-terrorism finance transitional rules will work in practice.

The association made a joint submission with the Financial Advice Association Australia to the Department of Home Affairs’ consultation on the draft Anti-Money Laundering and Counter-Terrorism Financing Transitional Rules 2026 and associated Explanatory Statement.

It stated that the draft rules propose to introduce a three-year transitional period for current reporting entities to meet the initial CDD obligations under the reforms.

“The draft transitional measures will require the reporting entity to adopt and comply with a single method for undertaking initial CDD during this period either by electing to comply with both the pre-reform ACIP obligations for all new customers and all customer types until the date they choose to transition to the reformed initial CDD obligations, or  new section 28 requirements under the reformed AML/CTF Act for initial CDD obligations for all new customers and all customer types from the date they choose to transition,” the submission stated.

“A core obligation under the reformed AML/CTF regime is that a reporting entity must undertake an ML/TF risk assessment, from which they must determine how to structure their AML/CTF policies to comply with their reformed CDD and customer risk assessment obligations.

“We and our members are concerned how these transitional arrangements will therefore work in practice and enable them to comply with their obligations. For example, it is unclear how the ACIP obligations under the current AML/CTF Act can align with the reformed AML/CTF program and record keeping obligations for reporting entities under the reformed AML/CTF Act and rules.”

Furthermore, the submission said both the SMSFA and FAAA are concerned that permitting reporting entities to operate under two regimes increases the risk of an inadvertent breach of their obligations.

“Clear guidance is needed from AUSTRAC to support the proposed amendments to ensure reporting entities understand how they can appropriately integrate the initial CDD transitional arrangements into their new ML/TF risk assessment and reformed AML/CTF policies, should they wish to continue relying on their existing ACIP procedures during the transitional period,” it stated.

It continued that reliance agreements are standard practice between AFSLs and financial product providers, as financial product providers rely on the initial CDD conducted by financial advisers on behalf of the AFSL to comply with their AML/CTF obligations.

“This is because the financial adviser generally holds the relationship with the client and acts as the conduit between the client and financial product provider. The reliance arrangement is typically included as part of the product distribution agreement between the financial product provider and the AFSL,” it stated.

“To ensure that a financial adviser, through their authorisation under the AFSL, can recommend appropriate financial products to their clients, determined by factors such as their client’s financial objectives and needs, AFSLs generally have reliance arrangements in place with a large number of financial product providers.”

It continued that the two associations assume that where a reliance arrangement is entered into, both reporting entities, for example the AFSL and financial product provider, will need to conduct initial CDD under the same procedure for the reliance arrangement to be effective and compliant.

“However, the proposed transitional provisions for initial CDD may result in one reporting entity electing to transition to the new initial CDD obligations under s28 before the other reporting entity does during the transition period,” it stated.

“This issue is amplified for AFSLs, most of whom will have in place a large number of reliance arrangements with financial product providers, and as a result, may be forced to conduct different initial CDD procedures for different clients during the three year transition period, depending on the election made by the respective financial product provider.”

Furthermore, the submission stated that the current AML/CTF Act also has different obligations that a reporting entity must meet in order to enter into and continue a reliance agreement with another reporting entity.

It also has different provisions that permit the “first entity” to rely upon the CDD undertaken by the “other entity”.

“We also note that the reformed reliance provisions are linked to the new initial CDD obligations in s28. As drafted, on the basis of the issues raised above, we suggest that the transitional arrangements for initial CDD are unworkable under the reformed reliance arrangement provisions for financial advice AFSLs, and in practice will create an unreasonable regulatory burden for AFSLs,” it stated.

Keeli Cambourne

March 19 2026

smsfadviser.com