AML/CTF Independent Review: What It Is & Why It’s Non-Negotiable

If you're a reporting entity in Australia, the term "AML/CTF Independent Review" is more than just compliance jargon—it's a statutory requirement. Under Part 8.6 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007, your Part A program must undergo a regular independent review.

But what does AUSTRAC (the Australian Transaction Reports and Analysis Centre) is Australia's financial intelligence unit and anti-money laundering and counter-terrorism financing (AML/CTF) regulator, actually require, and how can you ensure your business is prepared? This article breaks down everything you need to know about the AML/CTF independent review process.

What is an AML/CTF Independent Review?

An AML/CTF independent review is an impartial, objective evaluation of Part A of your Anti-Money Laundering and Counter-Terrorism Financing program. As per AUSTRAC's guidance, its purpose is to verify that your program:

• Effectively addresses your specific money laundering and terrorism financing (ML/TF) risks.
• The Program has been adequately implemented
• Complies with your obligations under the AML/CTF Act 2006 and associated rules.
• Is operating effectively in practice.

This review must be conducted by an external reviewer who is independent of the AML/CTF function being assessed.

Why is an Independent Review So Important?

Beyond ticking a regulatory box, an independent review provides immense value:

• Unbiased Assessment: It identifies gaps and weaknesses you might have missed internally.
• Risk Reduction: It strengthens your defences against financial crime, protecting your business and the community.
• Regulatory Confidence: It demonstrates to AUSTRAC that you take your compliance obligations seriously, potentially reducing regulatory scrutiny.
• Stakeholder Trust: It assures partners, investors, and customers that you are a secure and compliant entity.

How often should Independent Reviews be Conducted?

Frequency of Independent Reviews

Part 8.6.2 of the of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007, state "The frequency of the review should take into account the nature, size and complexity of a reporting entity’s business, and the type and level of ML/TF risk it might face."

The AML/CTF Rules require the review to be conducted on a regular basis. In practice, the frequency is based on your risk profile:

• Higher Risk Businesses: Typically require a review every 1-2 years.
• Lower Risk Businesses: May only require a review every 2-3 years.

Your entity's ML/TF risk assessment is the key determinant for this timeline.

More frequent reviews may be required if there are:

• Structural changes (e.g. M&A, outsourcing compliance functions)
• New products, channels, or customer types
• Changes in ML/TF risk exposure
• A history of compliance issues or enforcement action
• Significant amendments to the Program since the last review

Part A of your AML/CTF Program must specify review frequency, and AUSTRAC expects this to be regular and risk-based.

The Anatomy of an Effective AML/CTF Independent Review : A Deep Dive into the Reviewer's Process

A best-practice independent review is a forensic and strategic exercise, not a tick-box audit. It deconstructs a program to verify that its design and real-world application are seamlessly aligned with the AML/CTF compliance obligations. A superior review process investigates the why and the how behind every control.

Here is what a meticulous reviewer investigates and why, followed by how our methodology transforms this process from a compliance test into a strategic advantage.

What a Reviewer Investigates & Why: The core of the review lies in testing the program's operational effectiveness. The reviewer must move from policy to practice, tracing how theoretical controls are executed daily. This involves sampling real-world data, interviewing staff, and testing workflows to answer one central question: "Does this program, as implemented, effectively manage and mitigate the entity's specific ML/TF risks?"

This is important to ensure compliance with AUSTRAC requirements.

How We Do It:
We reject a passive, document-centric approach. Our process is built on dynamic testing and intelligent sampling, providing a true picture of your program's health and resilience.

1. Your ML/TF Risk Assessment

This is arguably the most important document. The reviewer will verify that your risk assessment considers all prescribed factors (customer types, services, jurisdictions, etc.) and uses a sound rating methodology. They will check that it is a living document, updated with AUSTRAC industry assessments and your own data (e.g., transaction monitoring results).

• The Review Focus: The reviewer must assess if the risk assessment is a genuine driver of the program's resources and controls. They will test its methodology, challenge risk ratings, and demand evidence that it is updated with real operational data.
• Why It's Critical: A flawed or outdated risk assessment means the entire program is built on an incorrect foundation, misallocating resources and creating blind spots.
• Our Superior Approach: We don't just read your assessment; we compare it to AUSTRAC guidelines to validate compliance. AUSTRAC has provided guidance on its expectations of ML/TF risk assessments and expects that the reporting entity includes all available data in the assessing risk (e.g. product / channel, transaction monitoring results, suspicious matter raised, relevant AUSTRAC industry assessments) We ensure it's a dynamic decision-making tool, not a static document, providing the reviewer with irrefutable evidence of its operational relevance.

2. Board Approval and Documentation

 Validating Governance & Board Engagement Beyond the Minutes

• The Review Focus: The reviewer seeks proof that the Board and senior management provide active, informed oversight, not just a rubber stamp. And inspect other supporting policies (such as AML board reporting, risk-rating methodologies, SMR program, HR policies covering employee screening and on-boarding)
• Why It's Critical: Without genuine engagement from the top, compliance becomes a middle-management function lacking the authority and resources to be effective.
• Our Superior Approach: We help you build a robust evidence trail that goes beyond meeting minutes. We develop clear, insightful reporting packages for the Board that transform complex compliance data into actionable business intelligence. This demonstrates to the reviewer that governance is an ongoing, strategic conversation.

Be ready to provide the current and any previous versions of your Part A program from the review period. The reviewer will seek evidence of Board approval, usually in the form of meeting minutes. Also, have all supporting policies and procedures (e.g., for Suspicious Matter Reporting) easily accessible.

3. Mandatory AML Training - Content and Delivery

Testing the Practical Application of Training

• The Review Focus: The reviewer must determine if training translates into competent action. They will test whether employees can articulate risks and procedures relevant to their role.
• Why It's Critical: Generic training creates a gap between policy and practice, leaving staff unprepared to identify real-world red flags.
• Our Superior Approach: We design and deliver immersive, scenario-based training tailored to specific roles within your organisation. We then supplement completion registers with knowledge assessments and practical exercises. This provides the reviewer with demonstrable proof of training efficacy, not just attendance.

4. Suspicious Matter Reporting (SMR)

The reviewer will examine your SMR process to ensure it clearly outlines steps, timeframes, and responsibilities. If you filed any Suspicious Matter Reports during the period, be prepared to walk through examples to demonstrate the process was followed correctly.

• The Review Focus: The reviewer will trace specific cases from alert to decision, auditing the timeliness, documentation, and critical thinking applied at each stage.
• Why It's Critical: This tests the ultimate output of your AML/CTF program—your ability to identify and report suspicious activity to AUSTRAC.
• Our Superior Approach: We conduct a review of your SMR casework, evaluating the quality of investigation and rationale. We help you implement clear, auditable workflows within your systems, creating an impeccable evidence trail that showcases disciplined, timely, and compliant decision-making to the reviewer.

5. Transaction Monitoring Program

Expect questions on how you monitor transactions (manual vs. automated), the logic behind alert generation, and how alerts are investigated and escalated. The reviewer will assess how you ensure the system is working as intended.

• The Review Focus: The reviewer will examine the rationale behind monitoring rules, the efficiency of the investigation process, and the governance around system tuning. Red flags, escalation process, systems and timing.
• Why It's Critical: An unoptimised system drowns analysts in false positives, wasting resources and increasing the risk of missing genuine alerts.
• Our Superior Approach: We go beyond asking "what" your rules are to understand "why." We perform data analysis to tune rules, reducing noise and focusing resources on genuine risk. We establish a formal governance framework for monitoring system changes, providing the reviewer with a clear narrative of continuous improvement and control.

6. Ongoing Customer Due Diligence (OCDD)

 Verifying Ongoing Customer Due Diligence (OCDD) Execution

• The Review Focus: The reviewer will demand evidence that OCDD, especially for high-risk customers, is being performed as prescribed.
• Why It's Critical: This is a common failure point. Vague policy statements lead to inaction, creating significant compliance gaps.
• Our Superior Approach: We engineer practical, automated OCDD workflows. Instead of unmanageable manual reviews, we help implement system-driven triggers based on specific risk events or time intervals. This allows you to present the reviewer with a systematic, evidence-based process that proves consistent execution.

A common pitfall is neglecting OCDD, especially for high-risk customers. We check that your program has a defined, risk-based approach to updating customer information, not just a vague policy statement.

7. Employee Due Diligence (EDD)

Your program must define which roles are higher risk and why (e.g., seniority, access to controls). The reviewer will check that screening and due diligence processes are applied not just at onboarding, but also when employees move into higher-risk positions.

• The Review Focus: The reviewer will check that employee screening is risk-based and applied throughout the employment lifecycle, not just at onboarding. HR Policies and record keeping.
• Why It's Critical: People are both your first line of defence and a potential vulnerability. Inconsistent screening creates internal threats.
• Our Superior Approach: We facilitate alignment between your HR and Compliance functions to create a risk-based employee screening framework. This ensures checks are proportionate to role risk and are triggered when employees change positions, demonstrating a mature, holistic approach to people risk.

8. Outsourcing and Third-Party Reliance

If you use third-party providers for any part of your program (e.g., screening tools), the reviewer will want to see evidence of due diligence, contracts, and ongoing monitoring to ensure they are fit-for-purpose.

Evaluating Third-Party Reliance Controls

• The Review Focus: The reviewer will verify that you actively manage vendors performing AML/CTF activities on your behalf, ensuring they are fit-for-purpose.
• Why It's Critical: You cannot outsource your liability. AUSTRAC holds you responsible for the actions of your third-party providers.

Our Superior Approach: We implement a robust third-party risk management lifecycle, integrating AML/CTF requirements into procurement, contracting, and ongoing performance monitoring. This provides the reviewer with documented assurance that your external partnerships are effectively governed.

Why AML/CTF Independent Reviews are a regulatory priority

AUSTRAC’s enforcement actions increasingly focus on failures in implementation and governance. Several high-profile matters have involved entities with outdated or unreviewed AML/CTF Programs.

An independent review not only validates your compliance posture but also provides the board and senior management with a clear understanding of risks and remediation needs.

Who needs Independent review

Reporting entitles providing a service listed in section 6 of the AML/CTF Act (because it has been identified as posing a risk for money laundering and terrorism financing) and which meets the geographical link. Designated services include a range of business activities in the financial services, bullion, gambling and digital currency exchange sectors. Entities that provide any of these services are reporting entities. Reporting entities have obligations under the AML/CTF Act. See AML/CTF Act 2006 section 6, tables 1–3

These entities have key obligations, including registering with AUSTRAC, developing an AML/CTF program, conducting customer due diligence, and reporting transactions and suspicious activities. And conduct regular independent AML/CTF compliance reviews of part A of their AML/CTF program.

Who is considered a Reporting Entity?

A reporting entity is defined by the specific financial, gambling, bullion, or digital currency exchange services they offer, as outlined in section 6 of the AML/CTF Act. 

If your business provides any of these designated services, you are likely required to have an AML/CTF Program and an independent review: 

• Financial advisory services 
• Remittance services 
• Gambling services 
• Digital currency exchange services 
• Motor vehicle dealership services 
• Bullion services 
• Lending services 
• Foreign currency exchange services

AUSTRAC’s enforcement actions increasingly focus on failures in implementation and governance. Several high-profile matters have involved entities with outdated or unreviewed AML/CTF Programs.

An independent review not only validates your compliance posture but also provides the board and senior management with a clear understanding of risks and remediation needs.

How Click Legal supports Reporting Entities

At Click Legal, we conduct expert AML/CTF reviews, audits, and consulting for Australian businesses across all industry sectors. Robust, cost-effective, affordable and seamless compliance solutions to meet AUSTRAC obligations.

Our reviews are:

• Delivered by experienced AML lawyers
• Structured for minimal internal disruption
• Offered on a fixed-fee basis
• Accompanied by clear, practical recommendations

We also assist with updating AML/CTF Programs in response to review findings — ensuring ongoing compliance with AUSTRAC’s evolving expectations.

Book Your Review

If you're unsure whether your AML/CTF Program is compliant or due for review, we're here to assist.

📩hello@clicklegal.com.au
📅 Book your complimentary 30-minute consultation

📞 +61 (0) 450 502 672

Our services includes:

• AML/CTF Independent Review and Solutions
• AUSTRAC compliance - AML/CTF Programs
• Money laundering risk assessment
• Tailored terrorism financing compliance procedures
• Procedures to comply with the AML/CTF obligations for AFSL holders
• We offer fixed-fee AML/CTF review