FAQs: Why Understanding the Scope of Designated Services Is Critical for Your Business

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1. What are ‘designated services’ and why do they matter?

Under the AML/CTF Act, a business becomes a reporting entity if — and the moment — it provides a designated service and has a link to Australia. (For Tranche 2 entities providing designated services, the applicability date is 1 July 2026.) Designated services are identified because they carry potential money laundering and terrorism financing (ML/TF) risks.

Once a business provides a designated service, it becomes subject to immediate legal obligations, including establishing AML/CTF compliance programs, undertaking initial and ongoing customer due diligence, suspicious matter reporting, enrolment with AUSTRAC, and more.

Correct identification of designated services determines the compliance perimeter of your business and underpins correct compliance.

 

2. Why is misidentifying designated services risky?

AML/CTF obligations are activity-based, and designated services can have nuances.Two businesses in the same industry may have different obligations depending on specific product features, transaction flows, customer types, and business model details.

Misinterpreting these nuances may result in incorrectly identifying your designated services, leading to either:

• Failure to discharge required AML/CTF obligations, or

• Over-engineering your AML/CTF Program beyond what is legally necessary.

 

3. Examples: How nuances affect interpretation of designated services?

a) Example 1: Bullion dealers – Threshold exemptions

A service may be a designated service, but exemptions can apply

For bullion dealers, there is a threshold-based exemption from applicable customer identification procedures (ACIP) — or, under the new AML/CTF regime, initial customer due diligence (ICDD).

A bullion dealer reporting entity is not required to undertake ACIP/ICDD for purchases or sales of bullion if the retail value of the transaction is less than A$5,000 (or foreign exchange equivalent).

However, in certain circumstances, the reporting entity must still undertake ACIP/ICDD for otherwise exempt transactions — for example, if enhanced customer due diligence is triggered.

Understanding the designated services scope — including when exemptions apply or do not apply — is therefore critical.

 

b) Example 2: Precious metal / stones / products dealers (Tranche 2) – When conditions determine designated services coverage

A service may be broadly a designated service, but it becomes a designated service only

when certain conditions are met

For dealers in precious metals, stones, or related products (in-scope under Tranche 2), the purchase is a designated service only if:

• The payment involves physical currency or virtual assets (or a combination), and

• With a total value of A$10,000 or more (or foreign currency equivalent).

A bank transfer is not covered in the scope.

Thus, the reporting entity must correctly apply the designated services conditions, as enumerated in Section 6, Table 2, Item 2 of the updated AML/CTF Act for Tranche 2.

 

c) Example 3: Life insurance – Sub-products may be out of scope

A product may be broadly captured under designated services, but certain sub-products are exempt

While life insurance policies are generally covered under the AML/CTF Act, nuances apply. For instance, policies with no prescribed minimum surrender value (typically pure risk policies) are out of scope of designated services and therefore outside AML/CTF requirements.

Understanding these distinctions prevents unnecessary compliance or incorrect categorisation.

 

d) Example 4: Afterpay (a buy-now pay-later business)  

Incorrect classification of designated service category

In 2018–2019, Afterpay incorrectly applied the category of designated services applicable to its business, reportedly based on incorrect legal advice.

Afterpay classified itself as providing a factoring-related designated service.However, following an external audit, AUSTRAC found Afterpay was effectively providing loans, and therefore should have applied the loan-related designated services category.

This misclassification meant the company’s AML/CTF Program did not appropriately address the relevant ML/TF risks. The outcome included enforcement action; reputational impact; and significant remediation efforts and costs.

This matter demonstrates how getting designated services wrong can trigger substantial consequences.

 

4. What questions can a business ask to correctly determine its designated services?

Key questions include:

a)       What product or service is the business actually providing (functionally, not in name)?

b)       Who is the customer?

c)       Where and how does money flow? Who pays whom?

d)       Do exemption thresholds or conditions apply for a service to be considered a designated service?

e)       Are there exemptions or simplified rules specific to the industry?

 

5. What are the consequences of identifying designated services too broadly (over-estimating scope)?

a)       A bloated AML/CTF Program requiring more resources and higher compliance costs

b)       Adverse impacts on customer experience and business operations

c)       Reduced regulatory confidence in your AML/CTF framework, even without a technical breach

d)       Reputational risk.

 

6. What are the consequences of identifying designated services too narrowly?

This is where the real regulatory risk lies. You may:

a)       Fail to enrol with AUSTRAC, or enrol incorrectly

b)       Conduct an inaccurate ML/TF risk assessment; and consequently apply incorrect or insufficient mitigating controls

c)       Miss required AML/CTF obligations

d)       Conduct inadequate transaction monitoring, resulting in missed suspicious matter reporting

e)       Face enforcement actions, civil penalties, or enforceable undertakings.

 

7. How often should a business review its designated services?

Businesses should periodically review the scope of designated services applied in their AML/CTF Program. It is particularly important to reassess when:

• Launching, modifying, or withdrawing products

• Entering new markets, jurisdictions, or customer segments

• Implementing new technology or service delivery channels.

Additionally, the updated AML/CTF Act requires reviewing AML/CTF policies at least once every three years.

 

Resources:

• More resources from our library for Tranche 2 entities - click here; other resources - click here.

• Regulatory resources: click here, here.

6 December 2025

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Compliense Advisors is an AML/CTF and FinCrime compliance and risk management advisory firm.

Our experience includes implementing legislative changes; undertaking ML/TF risk assessment; setting up, implementing, uplifting AML/CTF program; and advising on AML/CTF and FinCrime compliance and risk matters.

The article above is for general awareness and informational purposes only. Please carefully evaluate your circumstances, and seek professional advice for your specific needs. You are responsible for your compliance obligations, and for any action taken or omitted. We are not a law firm, and do not provide legal advice.

Write to us on compliense@compliense.com.au. Visit our website for more such knowledge resources. You can also sign up for new articles and updates.