Two months into Australia's expanded anti-money laundering and counter-terrorism financing (AML/CTF) regime, the hardest question facing law firms is no longer whether they are captured. It is what to do when a client will not verify their identity, cannot explain their source of funds, or asks for something the firm now has a statutory reason to refuse.
Amendments to the Australian Solicitors' Conduct Rules and, in New South Wales, the Solicitors' Practice Rules commenced on 1 July 2026, deliberately timed to land with the Tranche 2 reforms that brought lawyers, conveyancers, accountants and trust and company service providers into the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), the AML/CTF Act. Writing in the Law Society Journal on 27 August 2026, the Law Society of NSW's Bobbie Wan made the point that the substance of a solicitor's ethical duties has not shifted. What has changed is that the obligations have been made explicit.
Rule 8.1: screening starts at the door
Rule 8.1 of the Conduct Rules now provides that a solicitor must "only accept and follow" a client's lawful, proper and competent instructions. The addition of three words matters. It makes clear that the limit on acting for a client applies from the moment a prospective client walks through the door, rather than only once a retainer is on foot.
That framing sits alongside customer due diligence obligations under the AML/CTF Act, which attach to prospective customers as well as existing ones. The ethical rule and the statutory rule now point at the same moment in the matter lifecycle: intake.
Rule 13.4: "just cause" finally has a definition
Under Rule 13 of the Conduct Rules, a practice may terminate an engagement for just cause and on reasonable notice. Until now, though, "just cause" in this context existed only in the common law, which left many practitioners reluctant to act on it.
New Rule 13.4 adds a non-exhaustive definition. Just cause includes instructions that would require a solicitor to breach their ethical duties and professional responsibilities; circumstances where a solicitor is no longer able to act in the client's best interests; and circumstances where a client has not provided information required to fulfil a solicitor's statutory obligations.
That third limb is the AML/CTF limb. As Wan notes, the list is "a floor, not a ceiling": where a client is unreasonably evasive about identification, or cannot satisfactorily explain their source of funds, a firm can terminate the retainer with reasonable confidence it is acting consistently with the Conduct Rules.
Practice Rule 12: telling clients before you have to
The most practical change is a new rule on retainers. Practice Rule 12 provides that a retainer agreement should inform the client that the solicitor is subject to statutory obligations, including reporting obligations that may involve confidential information; that the solicitor may terminate the retainer where continuing to act would breach their ethical duties; and that the law may prohibit the solicitor from giving reasons for that termination.
The final limb answers the tipping-off prohibitions in the AML/CTF Act. A firm that forms a reasonable suspicion cannot tell the client that is why it is withdrawing. Setting the expectation at engagement puts the firm on a clear contractual footing before the situation arises.
The suspicious matter report problem
The Law Society's guidance goes further on the interaction between reporting and continuing to act. Where a suspicious matter report (SMR) obligation arises in relation to a client, it is difficult to see how a firm can keep acting: a solicitor cannot advance a client's best interests while reporting on them, and cannot seek informed consent without tipping them off. In practice, an SMR will generally mean ending the retainer, and the Law Society suggests seeking independent legal advice where that situation arises.
The statutory clock is unforgiving. An SMR must be lodged within three business days of forming a suspicion, or within 24 hours where it relates to terrorism financing. Firms that have not rehearsed the sequence of forming a suspicion, reporting and exiting will feel that timeframe acutely. Keeping intake, due diligence and file records in one auditable place, whether through a platform such as Legl's or otherwise, is what makes the sequence defensible afterwards.
Key takeaways
- Move screening to intake. Rule 8.1 now bites before a retainer is signed, matching the AML/CTF Act's treatment of prospective customers.
- Update your retainer template. Practice Rule 12 disclosures are far easier to include upfront than to explain later.
- Document your just cause reasoning. Rule 13.4 gives you a defined basis to terminate. Record which limb you relied on.
- Rehearse the SMR sequence, including the three-business-day and 24-hour thresholds and how you exit without tipping off.
- Do not improvise a termination. Where an SMR is involved, independent legal advice is prudent.
Looking ahead
Two items are worth watching. The first is the finalisation of the Legal Professional Privilege Guidelines 2026 under new section 242A of the AML/CTF Act; Home Affairs closed its most recent consultation round on 24 June 2026 and is working with AUSTRAC to settle the instrument. The second is supervisory: AUSTRAC expects Tranche 2 entities to have a complete AML/CTF framework by 30 June 2027, with the first annual compliance report due between 1 July and 30 September 2027. The ethical rules have caught up with the statute. Operational evidence is what gets tested next.
Sources
- Bobbie Wan, "Sharper focus: How amended conduct rules help you meet your AML/CTF obligations", Law Society Journal, 27 August 2026
- Carol Prasad, "Understanding designated services: when legal services trigger Tranche 2 AML/CTF obligations", Law Society Journal
- Law Council of Australia, Australian Solicitors' Conduct Rules 2026
- Law Council of Australia, Consultation on Solicitors' Professional Rules
- Department of Home Affairs, Draft Legal Professional Privilege Guidelines 2026
- AUSTRAC, Our regulatory priorities for 2026-27
- Law Society of NSW, AML/CTF Hub
