KYC in the legal sector: How to stay compliant without disrupting client service

Australia’s Tranche 2 anti-money laundering and counter-terrorism financing (AML/CTF) reforms are no longer a distant possibility, they’re coming into force on July 1 2026.

That doesn’t give legal professionals long to implement know your customer (KYC) procedures that are rigorous, auditable, and ready to scale.

And the stakes are high. Once Tranche 2 is enacted, firms that handle certain types of work and fall short of the obligations could face serious penalties: fines, audits, reputational damage and even being locked out of certain work if they can’t show compliance.

But this isn’t just about avoiding risk. KYC is fast becoming a key part of excellent client service. Get it right, and you show clients that your firm is secure, responsive and professional. Get it wrong and you may lose the trust and business of clients who expect more.

The challenge? Building KYC into your practice without undermining what your clients value most: discretion, responsiveness, and trust.

This article explores what KYC means in the legal context, how to implement it without disrupting your client experience and how technology can help you stay compliant without adding unnecessary complexity.

Why KYC matters more than ever

KYC isn’t just red tape. It’s our frontline defence against money laundering and terrorism financing and will soon be a compliance requirement. For legal professionals, that means understanding not only who your clients are, but why they’re engaging your services and whether their activities pose a risk.

KYC procedures typically require that you:

verify individuals obtaining designated services from your organisation against at least two independent and reliable data sources, or to a greater degree, depending on the risk rating of your customer
understand the nature and purpose of their business
assess the client’s risk profile (based on factors such as business type and location)
continue to monitor their activity for changes in risk.

You’ll also need to document every decision, every verification and every step of the process as part of your AML/CTF compliance program.

Why this needs to be on your radar now

A July 2026 deadline may sound far away, but building a compliant, firm-wide KYC process doesn’t happen overnight. Especially if:

you manage multiple legal matters with varying risk levels
your current client onboarding is mostly manual
you rely on in-person or paper-based ID checks
you have no system for ongoing monitoring.

By acting now, you give your firm the time and flexibility to evaluate solutions, refine internal processes and implement change in a way that’s measured, effective, and aligned with your client experience.

Build a compliant, client-friendly KYC process

Legal professionals may worry that KYC could add friction to the client experience or slow things down. However, with a robust onboarding process, KYC compliance can actually enhance trust and streamline onboarding.

Here’s a simple framework to guide your approach:

1. Collect client information early

Request identity documentation and a brief description of the legal matter at the start of your engagement. Clearly explain your AML/CTF compliance obligations so clients understand the process and why it matters for their safety and yours.

2. Verify identity using reliable tools

Digital identity verification platforms allow clients to confirm their identity quickly and securely without lengthy forms or in-person visits. This minimises manual admin, speeds up onboarding and reduces the risk of error.

Advanced KYC platforms offer:

fast onboarding through automated verification workflows
flexible configuration to match your firm’s risk profile
high match rates that reduce manual checks and delays
secure data handling with encryption and onshore processing.

By choosing a comprehensive identity solution, legal practices can onboard genuine clients faster, making it harder for bad actors to get through.

3. Offer alternative options for verification

Ensure your client onboarding is accessible. Offer clients postal or face-to-face identification options if digital verification isn’t suitable.

4. Keep data safe

Implement stringent measures to safeguard customer data from breaches and unauthorised access. For example, our identity verification solutions use secure data handling with encryption, onshore processing and employ data minimisation principles. Clearly explain to customers how their data will be used and protected, fostering trust and compliance.

5. Gather only the data you need

Asking for unnecessary data frustrates clients and slows onboarding. Your AML/CTF program should clearly define what data you need to collect and under what circumstances.

The AML/CTF framework encourages a risk-based approach, empowering you to make informed decisions and not treat every client as high risk.

For example, higher-risk clients requiring enhanced due diligence (EDD) might include:

clients involved in large or unusual transactions
offshore entities or clients from high-risk jurisdictions
businesses with complex ownership structures
Politically exposed persons (PEPs) or those flagged in adverse media.

A robust KYC program should enable you to flag these risks early, apply enhanced due diligence where necessary, and document your decisions.

6. Monitor client activity over time

Risk isn’t static. A client’s risk profile can change if they take on new business activities, operate in new jurisdictions, or appear in adverse media.

Ongoing monitoring allows you to reassess risk and take appropriate action if red flags emerge. Automating this monitoring, such as screening against updated PEP lists, sanctions or adverse media watchlists, can help you stay alert without constant manual effort.

7. Document every step

From July 2026, legal firms must be able to show how each client was verified, how their risk was assessed, and how they’ve been monitored. Clear documentation and auditable processes will be critical.

KYC compliance that enhances, not hinders

A July 2026 deadline may sound far away, but building a compliant, firm-wide KYC process doesn’t happen overnight. Especially if:

you manage multiple legal matters with varying risk levels
your current client onboarding is mostly manual
you rely on in-person or paper-based ID checks
you have no system for ongoing monitoring.

Are you ready?

From July 1 2026, many legal firms in Australia will be obligated to know their customers. With the right tools and approach, the KYC process can be adapted to meet these requirements without disrupting your business or frustrating your clients.

Start by building a compliant, client-friendly KYC process that’s risk-based, tech-enabled and ready for what’s ahead.

Need help simplifying your AML/CTF compliance

Partnering with a trusted provider can ensure you meet all regulatory requirements while minimising disruption to your client experience. Talk to our team of experts today to find out how.