AFSL & AML/CTF: Why Both?

A common surprise for clients establishing funds in Australia is discovering that securing an Australian Financial Services Licence (AFSL) does not automatically meet Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) obligations. While an AFSL regulates the provision of financial services, the AML/CTF regime is administered by AUSTRAC under a distinct legislative framework. If your fund is issuing or handling financial products—such as units in a trust, partnership interests, or scheme interests—separate AML/CTF obligations almost certainly apply.

Why an AFSL Is Not Enough

It is easy to assume that once ASIC grants an AFSL, the necessary compliance burden is largely covered. However, the AFSL falls under the Corporations Act 2001 (Cth), whereas AML/CTF obligations come from the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). AUSTRAC enforces AML/CTF rules and can impose significant penalties for non-compliance, even on entities that fully satisfy ASIC’s AFSL requirements. In practical terms, if your fund deals with or issues financial products to investors in Australia, you must check whether you are providing a “designated service” under AML/CTF law.

Who Handles AML/CTF: Corporate Trustee, LP or Responsible Entity?

Different structures can shift the core AML/CTF responsibilities to a particular entity:

• Corporate Trustee (in a trust structure): If the corporate trustee issues units to investors, receives subscription monies, and disburses payments, it generally becomes the principal “reporting entity” for AML/CTF. In that role, it must register with AUSTRAC, maintain an AML/CTF program, and conduct ongoing due diligence (KYC) on investors.
• Limited Partnership (LP): In an LP, the general partner (GP) usually manages the partnership’s affairs and may be the party issuing or redeeming partnership interests. When the GP is effectively handling or arranging financial services for investors, the GP often becomes the AML/CTF “reporting entity,” requiring AUSTRAC registration and an AML/CTF program.
• Registered Managed Investment Scheme (MIS): In a registered MIS, the responsible entity (RE) holds the AFSL and manages the scheme’s operations, including issuing scheme interests to investors. Because the RE is the one dealing with investor monies, it is typically the AML/CTF reporting entity, responsible for compliance and reporting.

In each case, the entity dealing directly with investors—by receiving funds, issuing interests, or making payments - tends to be the one that must register with AUSTRAC. Other parties (such as fund managers or administrators) still need to be covered under that reporting entity’s AML/CTF program, but they do not generally register independently unless they also provide designated services in their own right.

Key AML/CTF Obligations

All entities deemed “reporting entities” must undertake customer due diligence, keep proper records, and file specific reports with AUSTRAC. This includes:

• Enrolling with AUSTRAC to formalise your role as a reporting entity.
• Developing a risk-based AML/CTF program, incorporating KYC procedures, transaction monitoring, and staff training.
• Submitting Suspicious Matter Reports (SMRs) whenever you suspect money laundering or terrorism financing, and lodging Threshold Transaction Reports (TTRs) for any cash transactions over $10,000.
• Retaining records of customer identification and transaction histories for at least seven years.
• Conducting ongoing monitoring and regular reviews or independent audits of your AML/CTF program.

Why People Are Caught Off Guard

It is not unusual for fund operators to assume that because they have an AFSL, their compliance obligations end there. In reality, AML/CTF sits within an entirely separate regime. Even small or predominantly wholesale-based funds can come under scrutiny if they issue securities or handle investors’ money. AUSTRAC’s remit covers any “designated service”, regardless of how niche or small the fund may be.

Getting Started with Compliance

Entities that issue or manage investor funds in Australia should:

1. Identify which party is actually providing “designated services” (eg, issuing shares or units, receiving applications, or holding funds).
2. Register with AUSTRAC as soon as those services commence or are planned.
3. Prepare an AML/CTF program tailored to the fund’s risk profile, covering how investor identity checks and ongoing due diligence will be performed.
4. Ensure staff or third parties involved in capital raising, investor onboarding, or ongoing transactions know the red flags and reporting obligations.
5. Keep meticulous records and stay alert to changes in AML/CTF regulations, as non-compliance can incur severe penalties.

Conclusion

Holding an AFSL is an essential step for many Australian fund structures, but it does not exempt you from AML/CTF requirements. If your corporate trustee, general partner, or responsible entity issues financial products or handles investor monies, registration with AUSTRAC and a robust AML/CTF program are obligatory. Recognising this early on helps you avoid regulatory pitfalls and reinforces investor confidence in your fund’s governance.

Disclaimer

This article is provided for general information only and should not be taken as legal advice. Specific AML/CTF obligations can vary depending on your fund’s structure and activities. You should seek professional guidance tailored to your circumstances. Liability limited by a scheme approved under Professional Standards Legislation.