From Designated Business Groups to Reporting Groups: What the Reform Means for AML Independent Evaluations

Introduction

Reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act), which took effect on 31 March 2026 replaced the designated business group structure with a new reporting group model. This shift means reporting entities operating within a reporting group must work under a lead entity responsible for managing and mitigating money laundering and terrorism financing (ML/TF) risks across the group.

When reporting entities conduct an independent evaluation, the independent evaluator should test whether the group-wide compliance program, shared policies and procedures, and member-level controls work effectively for every relevant member.  This article explains how the reporting group transition changes the way Australian Transaction Reports and Analysis Centre (AUSTRAC) regulated businesses prepare for and respond to an independent evaluation report.

Interactive Tool: Check If Your Reporting Group Is Ready for Independent Evaluation

Transition from Designated Business Group to Reporting Group Model

Key Decisions for Designated Business Groups

Under Section 236B(5) of the AML/CTF Act (Cth) introduced by the 2026 AML/CTF reforms, reporting groups replaced the previous designated business group (DBG) model.

As per Section 10A(1)(a-b) of the AML/CTF Act (Cth) and Rules 2-1 and 2-2 of the Anti-Money Laundering and Counter-Terrorism Financing Rules 2025 (Cth) (AML/CTF Rules), a reporting group is a group of persons that includes one or more reporting entities and has a lead entity and ordinary members.

Existing DBGs were required to transition to the new framework by 31 March 2026. Before this deadline, former DBGs had to assess their structure and make key decisions, including determining if they:

• Were eligible to automatically form a reporting group based on control relationships;
• Needed to form an elective reporting group by agreement;
• Included all eligible members from the former DBG in the new structure; and
• Appointed an eligible lead entity in writing.

Importance of the Reporting Group Reform

The transition to the reporting group model has significant implications for anti-money laundering and counter-terrorism financing (AML/CTF) programs. If a member of a former DBG did not become part of a reporting group by the 31 March 2026 deadline, Sections 26F and 236B(5) AML/CTF Act (Cth) required it to develop its own separate AML/CTF program.

Such an entity can no longer rely on the joint program created under its former DBG. As a result, failure to establish a compliant, standalone program could result in non-compliance with the Act and potential civil penalties.

Understanding Business Group & Elective Reporting Groups

There are two primary ways a reporting group can be formed. The first is a business group, which is created automatically when a control relationship exists between entities and at least one of them provides a designated service. This structure often applies to parent and subsidiary arrangements.

The second type is an elective reporting group, which is formed by agreement between businesses. This model is suitable for organisations without a direct control structure but that share operational processes, branding or risk-management needs, with common examples including:

• Franchises;
• Agency or distribution networks; and
• Joint ventures.

Key Differences Between Reporting Groups & Designated Business Groups

The reporting group model offers greater flexibility compared to the former DBG structure. It allows reporting entities to centralise and share AML/CTF functions more effectively, which can help reduce costs and improve risk management.

Key advantages of the reporting group model include:

• Inclusion of non-reporting entities: Businesses that are not reporting entities can be members of the group and assist with carrying out AML/CTF obligations.
• Delegation of obligations: Members can discharge certain AML/CTF obligations on behalf of other members, such as customer due diligence or reporting.
• Group-wide programs: The structure supports a single, group-wide AML/CTF program with common policies, shared risk frameworks, and consistent oversight mechanisms.

Why the Reform Changes the Scope of Independent Evaluations

Testing the Group Model Rather Than Just the AML/CTF Documents

An AML independent evaluation of a reporting group should go beyond a simple review of the group’s AML/CTF program documents. While a reporting group may operate under common AML/CTF policies and oversight mechanisms, the evaluator should recognise that these arrangements may not be applied identically across all members.

This is particularly true for large or diverse reporting groups. Therefore, the evaluation should test whether the group structure itself is effective in practice. Ultimately, the focus should be on how the group-wide program is implemented by each member and whether it genuinely manages the specific ML/TF risks each entity faces.

Assessing Whether Centralisation Creates Control or Blind Spots

Centralising compliance functions within a reporting group can offer significant benefits, such as reducing duplication and improving the consistency of risk management. However, this approach can also introduce potential risks that an independent evaluator should assess. Specifically, a centralised model can create blind spots if the lead entity does not have a thorough understanding of each member’s individual risks.

An evaluation may examine whether the lead entity’s oversight is creating genuine control or if gaps remain. These gaps can appear when the lead entity is unfamiliar with:

• Specific member-level ML/TF risks;
• Local operating models of different members; and
• The practical application of delegated AML/CTF functions.

Identifying Whether the Program Works Across All Reporting Entities

A key task for the independent evaluator is to confirm that the group-wide AML/CTF program is effectively implemented across every reporting entity in the group. The evaluation may test whether each member is complying with the group’s policies and procedures in its daily operations.

The scope of the evaluation may also cover several critical areas:

• Non-reporting entities: Where non-reporting entities perform AML/CTF functions on behalf of members, the evaluator should assess if they are subject to appropriate controls.
• Member-specific risks: The evaluation should verify that the unique risks associated with each member’s designated services, customer types, and delivery channels are reflected in the group’s risk assessment and operational procedures.
• Practical implementation: The evaluator may gather evidence to determine if the documented program is what happens in reality for all members, ensuring compliance is consistent across the entire reporting group.

Lead Entity as a Key Focus in an Independent Evaluation

Assessing the Required Authority & Capability of the Lead Entity

An AML independent evaluation may verify that the lead entity possesses the genuine capability and authority to oversee the reporting group’s AML/CTF obligations. This assessment should go beyond reviewing written agreements to determine if the lead entity can effectively develop and maintain group-wide AML/CTF policies in practice.

Under the AML/CTF framework, this authority can be established in several ways. It may be direct, granted by the consent of group members, or implied by the group’s operational structure. Ultimately, the evaluation process can test whether this authority is actively exercised and respected throughout the reporting group.

Reviewing the Development & Implementation of the Group-Wide AML Framework

The lead entity is legally responsible for the AML/CTF compliance of the entire reporting group. Therefore, an independent evaluation may focus on how the lead entity has discharged these specific duties. This includes its role in developing and maintaining the group-wide program and coordinating risk assessments.

Key responsibilities of the lead entity that are subject to review include:

• Developing a group-wide ML/TF risk assessment.
• Implementing group-wide AML/CTF policies and procedures.
• Managing the overall AML/CTF compliance and risk management for the group.
• Monitoring whether member-level controls operate effectively in practice.

Ensuring the Lead Entity Has Access to Necessary Member Records

For a lead entity to effectively manage compliance, it should have access to all necessary records from each member of the reporting group. As a result, an independent evaluator might test whether the lead entity can access and review these documents to control and enforce compliance across the organisation.

The lead entity should ideally have access to a range of essential documents, including:

• Member-specific risk assessments.
• Customer due diligence files and records of customer identification.
• Transaction and reporting records, such as suspicious matter reports.
• Personnel training records.
• Internal breach registers and evidence of remediation actions.
• Previous independent evaluation reports.

AML Independent Evaluation Risks for Former DBGs

Treating the Reform as a Simple Rename

The transition from a DBG to a reporting group involves more than a change in terminology. The reforms introduce significant structural and legal changes to how groups manage AML/CTF compliance, meaning reporting groups are not simply DBGs with a new label.

Key changes under the new model include:

• Broader membership: Reporting groups can include non-reporting entities, which was not possible under the previous structure.
• Flexible formation: Groups can be formed by unrelated entities, such as franchises or joint ventures, that share similar ML/TF risks.
• Enhanced lead entity responsibility: The lead entity has new, legally defined responsibilities for the compliance of all group members.

Reviewing the Old Joint Program Against New Program Requirements

Reporting entities that were part of a DBG should not assume their old joint AML/CTF program is compliant under the new reporting group framework. Therefore, the group-wide AML/CTF program should be reviewed and updated to meet the new requirements.

This review is particularly important where the group’s structure has changed. For example, the existing program may need to be updated to reflect new operational realities and risks if:

• new members have joined;
• member responsibilities have been altered; or
• the designated services offered by the group have changed.

Documenting Member-Specific Controls & Customer Due Diligence

A single, group-wide policy may be insufficient to manage the specific risks faced by each member of a reporting group. This is especially true for large or diverse organisations where members provide different designated services or deal with different types of customers. Consequently, an independent evaluation should test whether each member’s unique risk profile is adequately addressed.

A one-size-fits-all approach can create compliance gaps, so the group’s risk assessment and policies and procedures should account for these variations. Furthermore, it is important to document member-specific controls and CDD processes to demonstrate that the unique ML/TF risks of each entity are being properly managed.

Ensuring Oversight for Non-Reporting Entities & Delegated Tasks

The reporting group model allows for AML/CTF functions to be carried out by non-reporting entities and for obligations to be delegated between members. While this offers operational flexibility, it also creates a risk that must be managed through clear documentation and oversight, as the lead entity remains accountable for any delegated tasks.

An independent evaluation should test whether these arrangements are effective. To support this, the lead entity’s AML/CTF program should clearly record these delegations, specifying:

• which entity is performing the task;
• on whose behalf the task is being performed; and
• how the lead entity monitors the performance of the delegated function.

Ultimately, proper controls should be in place to ensure any non-reporting entities performing AML/CTF functions are doing so in a compliant manner.

How Reporting Entities Should Prepare for an AML Independent Evaluation

Map the DBG Against New Rules

To prepare for an independent evaluation under the reporting group model, your organisation should begin by assessing its existing structure. This involves a thorough review of all entities that were part of your former DBG. Ultimately, the goal is to create a complete map of your operational and compliance landscape.

This process should identify every entity involved in your AML/CTF functions, including:

• All current reporting entities and non-reporting entities;
• Any related corporate bodies, including offshore entities; and
• external service providers that assist with AML/CTF obligations.

Confirm Automatic or Elective Group Status & Lead Entity Authority

After mapping your structure, you must determine how your reporting group is formed. Your organisation will either be a business group that automatically forms a reporting group due to control relationships, or you will need to form an elective reporting group by agreement with other entities. This is a critical step, as it defines the legal basis of your group.

Furthermore, it is essential to ensure the lead entity’s appointment and authority are formally documented. The independent evaluator will check for written evidence of the lead entity’s appointment. They will also verify it has the necessary authority and access rights to oversee the entire group’s compliance and review member records.

Update the AML/CTF Program & Prepare an Evidence Pack for the Evaluator

Your group-wide AML/CTF program must be updated to reflect the new reporting group structure. An independent evaluator should scrutinise this program to ensure it effectively manages the ML/TF risks of all members. As a result, preparing a comprehensive evidence pack can streamline the evaluation process.

Your evidence pack for the evaluator should include key documents such as:

• Board papers and minutes approving the transition to a reporting group;
• The formal written instrument appointing the lead entity;
• Updated organisational charts showing all members of the reporting group;
• The current group-wide risk assessment;
• A matrix or register detailing any delegated AML/CTF obligations; and
• Records of relevant personnel training on the new policies and procedures.

Conclusion

The transition to the reporting group model offers opportunities for improved consistency and risk management, but it also introduces significant governance and accountability risks for reporting entities. An independent evaluation should now thoroughly test whether the lead entity has genuine oversight and whether the group-wide AML/CTF program operates effectively in practice for every member.

Navigating these complex reforms requires careful planning and expert guidance to ensure your organisation meets its new obligations. Contact Click Legal’s AML/CTF lawyers for an independent evaluation review to discuss how we can assist you in confidently managing your compliance under the new reporting group framework.

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