KYC Requirements for Accounting Firms Under Tranche 2: What Partners Need to Know

Introduction (Partner-Oriented, Obligation-Led)

With the extension of Australia’s AML/CTF regime to Tranche 2 entities, accounting firms are expected to formalise aspects of client due diligence that were previously handled informally or inconsistently.

For many partners, the uncertainty is not whether KYC is required — but how far existing practices already go, and what additional structure Tranche 2 introduces.

This guide explains how KYC requirements apply specifically to accounting firms under Tranche 2, what changes in practice, and how partners should assess readiness without over-engineering compliance.

Does Tranche 2 Apply to Accounting Firms?

Not all accounting activities trigger Tranche 2 obligations.

KYC and broader AML/CTF requirements apply only where accounting firms provide certain designated services, including:

• Acting as a nominee director or shareholder

• Creating, managing, or administering companies, trusts, or other legal arrangements

• Providing registered office or principal place of business services

• Assisting with the formation or structuring of entities

Pure tax compliance, bookkeeping, and advisory services may fall outside scope, depending on how services are delivered.

This distinction is critical — and often misunderstood.

What “KYC” Means in Practice for Accounting Firms

Under Tranche 2, KYC for accounting firms focuses on three core questions:

1. Who is the client?

2. Who ultimately owns or controls the client (where relevant)?

3. Does the relationship present higher-than-normal risk?

For most firms, this does not require complex systems or bank-style onboarding. However, it does require that identity and ownership checks are:

• Explicit

• Documented

• Consistent

• Defensible if reviewed by AUSTRAC

Identifying Individual Clients

Where the client is an individual, firms are expected to take reasonable steps to verify identity using reliable and independent sources.

This typically includes confirming:

• Full legal name

• Date of birth

• Residential address

• Identity using government-issued documentation or approved electronic verification

In many cases, these checks resemble processes already used during engagement or conflict checks — but Tranche 2 requires that they are applied systematically, not ad hoc.

Identifying Companies, Trusts, and Beneficial Owners

For entity clients, expectations extend beyond the entity itself.

Accounting firms must be able to identify:

• The entity’s legal structure

• Directors or trustees

• Individuals who ultimately own or control the entity (beneficial owners)

Where ownership structures are complex, firms are expected to apply a risk-based approach, rather than exhaustively tracing every layer.

The objective is reasonable assurance — not perfection.

How KYC Connects to Risk Assessments

KYC is not a standalone task.

Under Tranche 2, KYC feeds directly into a firm’s broader AML risk assessment by helping determine:

• Whether a client presents higher inherent risk

• Whether enhanced due diligence is required

• How often client information should be reviewed

Treating KYC as a one-off identity check weakens its effectiveness and exposes firms to compliance gaps.

Common Pitfalls for Accounting Firms

Based on early guidance and industry experience, common issues include:

• Assuming existing engagement checks automatically satisfy KYC

• Applying the same depth of checks to all clients regardless of risk

• Failing to document why certain checks were considered sufficient

• Over-complicating processes out of fear of non-compliance

Tranche 2 does not expect firms to become investigators — but it does expect reasonable, documented judgement.

How This Fits Into Tranche 2 Readiness

KYC is one component of a broader Tranche 2 framework that also includes:

• AML risk assessments

• Staff training

• Ongoing monitoring

• Record-keeping and escalation procedures

Accounting firms that approach KYC proportionately — aligned to the services they actually provide — are best placed to meet regulatory expectations without disrupting client relationships.

Tranche 2 Readiness Assessment (15 mins)

If you are unsure whether your firm’s current client onboarding practices meet Tranche 2 expectations, a short readiness assessment can help clarify:

• Whether Tranche 2 applies to your services

• Which KYC obligations are relevant

• What is already sufficient vs what needs refinement

No obligation. No demos. No sales discussion.