Nearly every participant in the property market is facing the challenge of significant regulatory reforms and changes to compliance obligations due for implementation in July next year.
These reforms, legislated by the Federal Government in November 2024, involve the expansion of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime from the financial sector into real estate transactions.
From 1 July 2026, the expansion of the AML/CTF regime will apply to certain services provided by businesses categorised as tranche 2 entities, including real estate professionals.
This will require each party in the property supply chain who facilitates the sale and purchase of a property – including real estate agents, buyers’ agents, property developers, lawyers and conveyancers – to complete due diligence on buyers and sellers, monitor the transaction and report any risk of money laundering or terrorism financing to the Australian Transaction Reports and Analysis Centre (AUSTRAC) – Australia’s financial intelligence unit and AML/CTF regulator.
While these compliance obligations do represent a major challenge with multiple complexities, at digital property settlement group PEXA we recognise the AML/CTF regime is important in safeguarding the integrity of our financial system and combatting financial crimes.
The rationale for the reforms is that real estate, which falls within the high-value goods category, is considered a significant money laundering channel in Australia as it allows for the movement of large sums of cash in a single transaction. It can also be used to conduct illegal activities such as the growing or producing of illicit drugs.
According to AUSTRAC: “Compared to other methods, money laundering through real estate — both residential and commercial — can be relatively uncomplicated, requiring little planning or expertise. Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate.”
AUSTRAC also identifies that cross-border purchases of property carry elevated risks, particularly if the buyer is based in a high-risk jurisdiction and the purpose of the transaction is unclear. For example, where a property is left empty or the purchase price is higher than the property value.
The next step facing the property sector is how do we work together to find a balance between the necessity of the reforms and the economic and business realities of their implementation.
In previous debates about the AML/CTF regime expansion, concerns have been raised about the potential duplication of existing requirements and the added burden on lawyers and real estate agents – all subject to existing professional standards – and all of whom have to carry out many of the same activities (eg customer identification) for the purpose of the property transaction and/or associated financing activities.
In particular, there is concern that these obligations will primarily affect small businesses who are not resourced or equipped to carry substantial additional regulatory burdens.
It is accepted across the industry that these reforms will be a challenge, and we all need to work together to find the best way forward for all participants.
As a leader in the property industry, PEXA is committed to working with industry, government and regulators to explore how the eConveyancing network, which already connects parties to a property transaction including financial institutions and lawyers, can be leveraged to provide a more effective and efficient infrastructure to support these reforms.
Our aim is that together, we develop an innovative approach that will help the industry meet the new AML/CTF regulations and minimise duplication, ensure consistency, maximise effectiveness and reduce the compliance burden on small business.
By Kate Camilleri, General Manager, Strategy and Delivery, PEXA Group
