Customer Due Diligence in Practice: Implementing Simplified and Enhanced CDD Under the New Rules

Overview of the New CDD Requirements

The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 introduces major updates to how reporting entities perform Customer Due Diligence (CDD). The new framework, effective from 31 March 2026, establishes a more risk-based and outcomes-focused approach that provides flexibility without compromising compliance.

Initial vs Ongoing CDD

The revised CDD framework separates obligations into two stages — Initial CDD and Ongoing CDD — ensuring due diligence is tailored to customer risk and transaction type.

Initial CDD

• Performed before providing any designated services.
• Requires entities to establish customer identity on reasonable grounds and assess the ML/TF risk level.
• Must include identification of:
  • the customer
  • their representatives
  • any person on whose behalf a service is provided
  • any beneficial owner of the customer
• Screening is required for politically exposed persons (PEPs) and those subject to targeted financial sanctions.

Certain elements of initial CDD may be delayed if doing so is necessary to avoid disrupting normal business operations.

Ongoing CDD

Ongoing CDD requires continuous monitoring and management of ML/TF risks, ensuring entities detect and respond to changes in customer behaviour, transactions, or ownership that may increase risk.

Enhanced and Simplified CDD in Practice

Simplified CDD

Simplified CDD applies where the customer’s ML/TF risk is low and no enhanced CDD triggers are present. Examples include low-value accounts, government entities, or customers with transparent funding sources.

Simplified CDD allows for reduced identity verification steps and fewer ongoing monitoring requirements — effectively reducing compliance burden while maintaining oversight.

Enhanced CDD

Enhanced CDD (ECDD) must be applied where there is a high ML/TF risk or in specified situations, such as:

• When a foreign PEP is involved.
• When suspicious matter reporting (SMR) obligations arise.
• When customers operate in high-risk jurisdictions or sectors.

Enhanced CDD involves collecting additional information, verifying sources of wealth or funds, and increasing transaction monitoring frequency.

Pre-Commencement Customers

The new CDD rules also address customers onboarded prior to the commencement of the reforms. Entities must:

• Monitor existing customers for significant changes that may increase risk.
• Complete both initial and ongoing CDD where a customer’s risk level rises to medium or high, or where an SMR trigger occurs.

Updated CDD Exemptions

• Keep Open Notices: Law enforcement can issue these to allow entities to delay certain CDD steps where disclosure could compromise an investigation.
• Lower Gambling Threshold: The CDD exemption threshold for gambling services decreases from $10,000 to $5,000, aligning with FATF international standards.

Next Steps for Reporting Entities

With CDD reforms taking effect from 31 March 2026, reporting entities should start:

• Reviewing and updating their ML/TF risk assessments.
• Aligning internal systems and training with new CDD requirements.
• Revising onboarding procedures to support simplified and enhanced CDD processes.
• Engaging compliance officers and senior management to oversee implementation and governance.

For detailed guidance, visit AUSTRAC’s Customer Due Diligence Reform page.