With Tranche 2 of the Anti-Money Laundering / Counter Terrorism Financing (AML/CTF) reforms now live for close to 6 months in Australia, affected businesses are starting to revisit whether the approach they took is working the way they had anticipated. While many have cited unavoidable customer friction created as a result of onboarding and due diligence processes, others have had little time to sit down to crunch the numbers.
We did. And the results are quite interesting.
Key Insights
The following are key things Tranche 2 businesses should consider based on what we found in our number crunching:
- Know Your Customer (KYC) activities chew up the most time and can significantly eat into a business’ profit margins if they are not being fully passed on to the customer. As a variable cost attached to each new customer on-boarded, it is a key driver of compliance costs to the business.
- Customer complexity can exacerbate bottom line pressure. By complex, we mean customers who are not salaried individuals that are simple to process. Trusts, associations and body corporates for example, require extensive due diligence, like source of wealth/funds and beneficial ownership checks.
- AML/CTF compliance can quickly drain business development time and resources if it is not strictly cordoned off from frontline sales staff. This is an encroaching cost that often gets overlooked because it is unlikely to be directly tracked or managed. Every hour a sales
staff member spends doing customer onboarding or due diligence, is an hour not
spent developing new business. - With much of the spotlight on KYC, many businesses forget they also need to allocate time and resources to program maintenance tasks. It includes things like periodic effectiveness checks and annual reporting. These essentially function as internal audits and reviews on
how effectively a compliance program is being managed. - If there is high staff turnover, a business should consider who gets involved in compliance activities. Each fresh staff member involved will need to go through personnel due diligence, which not only chews up time and resources but can create problems down the track if there are no set systems in place.
- One of the biggest blind spots is the cost involved in appointing an independent evaluator every 3 years. This is an external audit by a qualified person to ensure the program is running as it should be. It is unlikely to be a negligible cost given the requirements and scope of activities that need to be conducted.
Methodology
A word on how we produced the above insights. After extensive digging through the interweb for hints and clues on how the Government came up with its own industry impact figures [1] without much success, we went back to basics and took an Activity Based Costing approach based on the AUSTRAC Program Starter Kits.
We broke down the activities into the following tasks and estimated the hours required
to complete them:
- Know Your Customer (KYC) – including onboarding, due diligence and enhanced due diligence tasks for a spectrum of client complexity types;
- Personnel due diligence – for distinct roles, from client facing personnel to compliance officer;
- Effectiveness checks – including for cross border movement, client onboarding, compliance officers & senior managers, enhanced due diligence, suspicious matter reporting and threshold transaction reporting; and
- Program management tasks such as annual reporting, risk assessments, independent evaluations and AUSTRAC engagement.
We then evaluateddifferent scenarios based on:
- Number of customers onboarded;
- Proportion of complex customers;
- How many staff engage in KYC;
- Whether KYC costs are passed onto customers;
- Number of compliance personnel; and
- Average staff cost and independent evaluations.
Recommendation
With the above in mind, we would recommend the following for businesses currently
struggling.
- Where-ever possible, KYC activity costs should be passed on to the customer. This unfortunately may not always be possible in certain price sensitive industries or sectors. In such instances, businesses should look at using automation to do the heavy lifting. Certain aspects of KYC activities will always require human involvement, like reviews and checks, but automation can drive down the bulk of the costs involved.
- Consideration of KYC costs is particularly critical for businesses that specialize in value-adding within complex scenarios, like boutique legal or accounting firms. Subject to professional practice rules, the additional costs should (if it has not already) be made
clear to clients as part of the engagement process. - Program maintenance activities should not be put on the back burner, as minor problems can accumulate into significant ones if not dealt with at its onset. Businesses should avoid treating it as a mere technical ‘compliance’ issue, as the program’s effectiveness will inevitably be assessed by an independent evaluator down the track. The cost to close any
apparent gap after 3 years is also likely to be a lot more expensive than if it were tackled in year 1, when it was first identified.
The impact of AML/CTF compliance on Tranche 2 businesses is unavoidable. It does not, however, need to be a significant burden if businesses take the time to analyse what the key drivers of compliance costs are and work smart (not hard) to meet the requirements. Like it or not, it is now a cost of doing business.
If you are curious about exploring how effectively you are managing AML/CTF compliance costs, feel free to use our interactive calculator to try out different scenarios for yourself.
[1] Attorney General’s Department - Reforming Australia’s anti-money laundering and counter terrorism financing regime, Table 19, Nous Group, ‘Impact analysis: Regulatory reforms to AML/CTF regime’ (Report, August 2024). Accessed 29/10/2026