How legal firms can embrace digital identity verification for Tranche 2 AML/CTF Reforms

With Tranche 2 of Australia's Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reforms due to take effect in July 2026, law firms are facing a major shift in how they engage with clients.

Under the proposed changes, legal professionals providing services such as property transactions, trust account management, or company formation will be required to verify client identities, assess risk, and report suspicious activity, just as banks and financial institutions have been doing since 2006.

This marks a significant shift for many legal practices, especially those that rely on manual or face-to-face processes.

The challenge? Adapting to new AML/CTF compliance burdens.

The opportunity? Streamlining outdated processes with digital identity verification (IDV), which is a smarter, faster and more secure way to meet regulatory requirements and deliver a better client experience.

This article examines how embracing digital identity verification now can help alleviate the compliance burden and ensure your firm is prepared ahead of the 2026 deadline.

Why Tranche 2 will reshape how legal firms onboard clients

From 1 July 2026, law firms will be required to undertake customer due diligence (CDD) before providing certain legal services. This means:

Identifying and verifying individual clients and beneficial owners
Understanding the nature and purpose of the client's matter
Assessing the client's risk profile (e.g. business type, location, ownership)
Ongoing monitoring for changes in risk
Performing enhanced due diligence (EDD) in higher-risk situations

What CDD looks like under Tranche 2

Manual identity checks (e.g., sighting a passport and photocopying it for the file) are not only time-consuming but also prone to errors, especially for law practices managing a high volume of clients or those with remote clients.

Relying on email chains, scanned passports, or physical ID document copies increases the risk of:

non-compliance with AUSTRAC's reporting obligations
increased exposure to reputational and regulatory risk
delays in client onboarding, creating friction and frustration at this critical first stage of the relationship.

The risks of getting identity checks wrong

Once Tranche 2 is enacted, legal practices that handle certain types of work and fail to meet their AML/CTF obligations may face:

Significant fines and regulatory penalties
More frequent audits
Loss of client trust or work from regulated entities
Reputational damage

Digital identity verification helps mitigate these risks by automating and standardising ID checks using reliable and independent data sources, delivering compliance without the bottlenecks.

How digital identity verification transforms compliance

For many law firms, onboarding new clients has traditionally involved a mix of photocopied documents, email attachments, manual checks, and handwritten forms. While this was sufficient in the past, it won't meet the standards set by Tranche 2, where law firms must prove they've verified each client's identity, assessed risk and retained auditable records.

This is where digital identity verification comes in.

Digital identity verification is already widely used across banking, fintech, telcos and government. Rather than adding a new burden, the technology offers a way to build compliance into your everyday workflow, efficiently and consistently. And it does so without disrupting your client experience.

A step-by-step look at how it works

When a client engages your firm for a service that falls under the AML/CTF regime, such as a property transaction or company formation, you trigger the identity verification process.

With advanced IDV platforms like GBG’s identity verification solution greenID, the client is guided through a simple process:

The client, or your staff enter their name, date of birth and address and sometimes identity document details.
The platform immediately verifies client details against trusted, authoritative data sources, such as government databases and credit bureaus, to confirm that the identity is genuine.
In parallel, it runs real-time checks against the latest global watchlists, sanctions databases, and politically exposed person (PEP) lists to identify any high risk individuals.

The entire process takes less than a minute. If the client passes all checks, they're automatically approved, and you receive a digital record, complete with timestamps and verification results, ready for inspection by AUSTRAC if needed.

Any red flags are automatically escalated for further review, allowing your team to focus where it's needed most.

The verification record is stored in Australia, in accordance with the latest security & privacy standards.

Biometric verification is not a requirement of the AML/CTF Act, but can be added on to the identity check if desired.

Free up staff while boosting compliance confidence

Instead of relying on individuals to chase documents or interpret checklists, you benefit from a repeatable, automated process that applies to every client, every time and forms a cornerstone of your customer risk assessments.

The result:

Fewer errors
Faster onboarding
Assurance that your compliance obligations are being met consistently and efficiently

A better experience for your clients

Clients can verify their identity at any time on any device. With mobile-friendly ID and biometric verification, there's no need for clients to visit your office or wait days for manual approval. This removes unnecessary delays at the start of the relationship, enhancing the client experience.

What legal firms can learn from banks' AML evolution

This isn't the first time a regulated sector has undergone major AML reform. When Tranche 1 took effect in Australia in 2006, banks were required to overhaul their processes for verifying customer identities and assessing AML risk.

They transitioned from fragmented manual checks to fully integrated digital platforms that could:

Instantly verify IDs
Detect suspicious activity early
Maintain consistent audit-ready records

Those who moved early avoided penalties, gained regulator trust, and delivered better customer experiences.

Legal practices can learn from this journey. By acting now, you can avoid a costly and stressful scramble when regulations become mandatory in July 2026.

What do look for in a digital identity verification provider

When you're considering a digital identity verification solution, look for a provider that understands the unique needs of legal professionals under Tranche 2.

Here are some key questions to consider:

Regulatory alignment: Is the provider across AUSTRAC's expectations for legal services?
Custom workflows: Can you tailor the process to suit your practice areas and risk appetite?
Integration: Will the platform work seamlessly with your existing practice management systems and workflows, or even improve them?
Vast data coverage: Does the provider have access to a broad range of authoritative data sources, such as the Australian Government's DVS, credit bureaus, electoral rolls, and international identity registries? The wider the data coverage, the higher the match accuracy and the faster you can verify identities.
Security and data privacy: Is the platform compliant with Australian privacy laws, and does it follow global best practices (e.g., ISO27001, SOC 2 Type 2)?
Local support: Do they have local experts who can support your team with implementation, training, onboarding and updates as the regulatory landscape evolves?
Audit readiness: Does the provider offer clear reporting, data retention, and audit trails to satisfy AUSTRAC requirements.

Final thoughts

The introduction of Tranche 2 represents a turning point for how law firms manage risk, deliver services and build trust with clients right from the start. In other words, it creates an opportunity for firms to modernise, streamline and lead.

By investing in the right digital identity verification technology now, you can:

Ensure compliance with minimal disruption
Deliver fast, seamless onboarding experiences
Reduce the risk of fraud and human error
Be audit-ready from day one

Learn how GBG can help your firm prepare for Tranche 2 with trusted, flexible identity verification designed for Australian legal professionals.