Unlocking Item 54: what the new AML/CTF regime means for AFS licensees and financial advisers
The sweeping overhaul of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime reshapes the way financial advisers or Australian financial services (AFS) licensees who arrange for clients to receive designated services from other reporting entities operate.
These reforms, which largely commenced from 31 March 2026, modify the obligations for these providers, requiring them to register with AUSTRAC and implement ‘Special’ AML/CTF Programs focusing on customer identification. Our experts explain how these reforms change the compliance landscape.
What is an Item 54 designated service?
As part of the reforms, there are significant changes you need to be aware of if you are a provider of the ‘designated service’ contained in Item 54 of Table 1 of section 6 (Item 54) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
Item 54 provides that the following is a designated service:
in the capacity of holder of an Australian financial services licence, making arrangements for a person to receive a designated service (other than a service covered by this item).
AUSTRAC provides the following (non-exhaustive) examples of Item 54 designated services:
- a financial planner implementing advice given to a customer to invest in a share through a broker;
- a financial planner advises their client to obtain an interest in a product through an investor directed portfolio service and the financial planner undertakes transactions to realise this;
- a financial planner transfers money, with the written and signed consent of the client, from their client’s investor directed portfolio cash account to the client’s bank account.
Arranging for a person to receive a designated service from another provider of designated services is generally considered a lower-risk activity because that other relevant provider will also be subject to the AML/CTF obligations in respect of that designated service.
On that basis, where all the designated services provided by a reporting entity are covered by Item 54 (Item 54 provider), they were subject to reduced obligations under the AML/CTF regime.
Previous obligations and exemptions
Under AML/CTF regime, in effect prior to 31 March 2026, a reporting entity could not adopt or maintain a ‘special anti-money laundering and counter-terrorism financing program’ (Special Program) unless they were an Item 54 provider. [1]
A Special Program is less onerous than a ‘standard’ AML/CTF program in that it was only required to implement ‘Part B’ of a ‘standard’ program. The primary focus of Part B was to ‘set out the reporting entity’s applicable customer identification procedures’. [2]
Item 54 providers were still required to implement initial customer due diligence and information verification procedures and were subject to suspicious matter reporting obligations. However, ongoing and enhanced customer due diligence procedures were not required of Item 54 providers.
Special Programs also did not require an Item 54 provider to:
- appoint an AML/CTF compliance officer, or have in place any management oversight procedures (though it is recommended);
- lodge annual compliance reports; or
- conduct regular independent reviews of the Special Program.
Current obligations
As part of the reforms to the AML/CTF regime, the concept of a Special Program no longer exists. Instead, the obligations for Item 54 providers focus more on individual business risk assessments and more procedural flexibility.
Item 54 providers must ensure they are familiar with and implement the following reforms to key aspects of their AML/CTF program requirements under the reformed regime.
Enrolling as a reporting entity
When enrolling as a reporting entity, businesses that only provide item 54 designated services must now advise AUSTRAC within the application that they will only provide such services. [3]
Customer due diligence
Item 54 providers must continue to maintain initial customer due diligence procedures. However, these procedures must now be appropriate to the risks of money laundering, financing of terrorism and proliferation financing ( ML/TF/PF ) that the reporting entity may reasonably face in providing its designated services. [4]
This requires Item 54 providers to conduct an initial ML/TF/PF risk assessment of each customer prior to providing the designated service, although they will not be required to maintain ongoing oversight over the customer’s ML/TF/PF risk following this initial assessment. [5]
Rather than a ‘one size fits all’ approach to due diligence, Item 54 providers conducting initial customer due diligence must be informed by the customer’s initial ML/TF/PF risk assessment, and tailor their verification process based on the level of risk identified.
Where the ML/TF/PF risk is considered low, Item 54 providers may implement a simplified customer due diligence procedure for that customer, requiring less rigorous identification before providing services.
As part of the reformed AML/CTF regime, Item 54 providers are also now required to conduct enhanced customer due diligence where the customer’s ML/TF/PF risk is considered high. [6]
Ongoing exemptions
AUSTRAC has still maintained recognition of the lower levels of ML/TF/PF risks faced by Item 54 providers generally. Under the reformed regime, Item 54 providers are still not required to, among other things:
- undertake ongoing customer due diligence procedures; [7]
- appoint an AML/CTF compliance officer; [8]
- undertake employee due diligence procedures; [9]
- provide employee training on the ML/TF/PF risks of the business;
- conduct periodic internal reviews or arrange independent evaluations of their AML/CTF programs; [10] or
- lodge annual compliance reports. [11]
Next steps
Noting the significant reforms to the obligations of Item 54 providers, it is imperative you are familiar with the revised requirements of your AML/CTF program now in place under the new AML/CTF laws.
If you are unsure as to how these changes might affect you or your business, our expert AML/CTF team is here to help and would be happy to discuss your obligations and how to best comply.
[1] Old AML/CTF Act s 84(5) prevented AFSL’s from implementing a ‘standard’ AML/CTF program.
[2] Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) ( AML/CTF Rules ) r 4.1.1.
[3] New Act s 51E; New Rules r 2-2(4).
[4] New Act s 26T(2).
[5] New Act s 26T(3)(b).
[6] New Act s 32(a).
[7] New Act s 29(10).
[8] New Act s 26T(3)(a).
[9] New Act s 26T(3)(a).
[10] New Act s 26T(3)(a)
[11] New Act s 47(5).
