As a small business in Australia, understanding KYC requirements isn’t just about ticking regulatory boxes—it’s about protecting your business and contributing to a safer financial system.
KYC procedures are a critical component of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) framework. Overseen by the Australian Transaction Reports and Analysis Centre (AUSTRAC), these requirements serve as a fundamental tool in preventing financial crime and protecting the integrity of Australia’s financial system.
As a small business, you may not be required to comply with the KYC requirements. However, chances are that one or more of your service providers is a reporting entity and is required to verify the details you give them. Given the rapidly changing nature of these regulations, understanding your role in this system can help you better communicate with those service providers and continue to carry on your business with minimum disruption.
Let’s break down the topic for you.
Table of Contents
What is KYC?
KYC stands for “Know Your Customer.” It is a verification process used by businesses, especially in financial sectors, to confirm the identity of their clients. KYC ensures compliance with legal regulations and helps prevent fraud, money laundering, and other illegal activities.

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Purpose of KYC requirements
The primary purpose of KYC procedures under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act) is to verify customer identities before facilitating transactions, thereby preventing criminals from using false or stolen identities to launder money through financial institutions.
With organised crime and money laundering costing Australia an estimated $60.1 billion annually, robust KYC procedures are essential for maintaining the security of the financial sector.
KYC requirements serve multiple crucial functions:
- Mitigating risks of financial crimes, including money laundering, terrorism financing, fraud, and identity theft
- Enabling financial institutions to assess and manage customer-related risks
- Providing valuable information to law enforcement agencies for investigating financial crimes
- Protecting businesses and legitimate customers from unauthorised transactions
Who is bound by KYC requirements?
The AML/CTF regime is expanding (more on that below), but at the moment, KYC requirements apply to entities providing the following services (among others):
- Banking
- Lending
- Providing goods through hire-purchase and finance leasing
- Gambling
- Currency exchange
As is evident, this covers a range of services that many small business owners are likely to use.

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Core KYC obligations
Under the AML/CTF Act, reporting entities must fulfill several key KYC obligations:
Customer Identification Procedures
The Act explicitly prohibits providing certain services without first completing applicable customer identification procedures (ACIP). These procedures must be documented in the entity’s AML/CTF program and should include:
- Verification of individuals’ identity
- Identification of a customer’s sources of funds and wealth
- Identification of the beneficial ownership of entities
Verification Requirements
Customer identification must be verified using “reliable and independent” sources.
For individuals, this can include:
- Primary photographic identification (passports, driver’s licenses)
- Primary non-photographic identification (birth certificates, citizenship certificates)
- Secondary identification documents (government notices, utility bills)
- Electronic data that is accurate, secure, up-to-date, and maintained by government bodies
Entities must provide their full name, including ACN and/or ABN, and status as a proprietary limited company or otherwise.
For sources of funds and wealth, a more discretionary approach may be taken that should be guided by the apparent level of risk presented by each customer.
For low-risk customers, this may be as simple as evaluating whether the wealth and funds provided by the customer can be easily explained by their industry or investments. For high-risk customers, a background check may be required to spot any red flags and check for consistency with the information they have voluntarily provided.
Ongoing Customer Due Diligence
The AML/CTF program must include ongoing customer due diligence processes to:
- Ensure customer information remains current
- Monitor transactions for suspicious activity
- Conduct enhanced customer due diligence for high-risk customers
- Identify and manage patterns of risk across the customer base
Risk-based approach
AUSTRAC requires reporting entities to take a risk-based approach to KYC procedures. This means:
- The level of due diligence should correspond to the customer’s risk profile
- Higher-risk customers require more extensive verification and monitoring
- Systems and controls must consider identified ML/TF risks
- Procedures must be adaptable to changing risk landscapes
Record keeping and reporting
Reporting entities must:
- Maintain KYC records for at least seven years after the business relationship ends
- Document how customer identities were verified
- Report suspicious matters to AUSTRAC through suspicious matter reports
- Keep robust records for independent audits and regulatory checks
Non-compliance consequences
Failure to comply with KYC requirements can result in severe penalties, including:
- Substantial civil penalties
- Criminal prosecution in severe cases
- Enforceable undertakings
- Suspension or revocation of operating licenses
- Reputational damage and loss of business opportunities
Special considerations
The AML/CTF Act recognises that certain groups may face barriers in providing standard identification documents. For these cases, AUSTRAC permits alternative documentation approaches for:
- Aboriginal and Torres Strait Islander peoples
- Domestic violence survivors
- Homeless individuals
- Refugees and asylum seekers
- Natural disaster victims
Alternative documentation may include referee statements, government correspondence, community ID cards, or self-attestation, subject to risk-based assessment.
What does this mean for small businesses?
Most small business owners will not have to worry about the technical aspects of these requirements, for they are much more likely to be customers of reporting entities but reporting entities themselves. However, they will have to be prepared to respond to the queries posed by their service providers. For this, we recommend the following:
- Keeping up-to-date with the general legislative requirements as well as with the KYC policies of their service providers
- Using financial accounts that can provide straightforward access and information when required
- Having anti-fraud measures in place so that valid KYC requests can be easily identified and fraudulent requests ignored or reported
- Designating a contact person who is trained to handle these procedures
Upcoming Changes
In November, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) was passed by the federal parliament. This amendment bill changes the structure of these obligations but, most importantly, expands the scope of services that the legislation applies to.
These changes kick in at the start of the 2025/2026 financial year. Legal service providers, among others, will be required to conduct KYC checks. Lawpath will be releasing further legal updates with more information on these changes.
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Conclusion
KYC requirements under the AML/CTF Act represent a crucial framework for protecting Australia’s financial system from criminal abuse. While these obligations may be complex, they are essential for maintaining the integrity of financial services and preventing criminal exploitation of the financial sector.
Reporting entities must ensure their KYC procedures are robust, risk-appropriate, and consistently applied to meet their legal obligations and protect their operations from financial crime risks. Customers should have a general understanding of these procedures to facilitate their own access to the services of these reporting entities.
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