Quarterly Pulse: AML Goes Live, AI Verification Hardens and Conduct Rules Rewrite Client Engagement

AML/CTF Tranche 2 became law on 1 July 2026, the amended Solicitors' Conduct Rules commenced the same day for every solicitor, and courts have converged on one rule for AI-assisted filings: verify it or wear the consequences. Here is what moved last quarter and what it means for a strong Q4.

AML/CTF Tranche 2 is live, and the conversation has moved past “what do we do”

AUSTRAC is now actively targeting firms that failed to enrol. From 1 July 2026, firms providing any of the nine “designated services” under Table 6 of the AML/CTF Act became reporting entities, with civil penalties of up to $31.3 million per contravention.

With 29 July as the hard-set enrolment deadline, AUSTRAC did not wait around. On 28 August 2026, less than a month after the cut-off, the regulator began issuing section 167 notices to businesses, including lawyers, that it believed were providing designated services without enrolling.

Before 1 July, firms were asking what to put in place and when to enrol. Now the question has shifted to whether the systems actually work: can staff recognise a red flag, escalate it properly, and document why they made the call?

Strategic advice generally remains outside the regime, as do in-house lawyers advising their own employer. But the threshold is applied service by service rather than practice area by practice area, and that distinction is still catching firms out.

Do the amended Conduct Rules apply to every solicitor?

Yes. The amended Australian Solicitors' Conduct Rules commenced on 1 July 2026, following adoption into each state and territory's local rules, and apply regardless of whether a firm provides AML-designated services.

The changes arrived alongside AML/CTF Tranche 2, but their reach is broader. Rule 8 reinforces the ongoing duty to assess whether instructions are lawful, proper and competent. Rule 12 requires engagement letters in Uniform Law jurisdictions to address relevant statutory reporting obligations. Rule 13 clarifies when there is “just cause” to cease acting.

Every solicitor should be reviewing engagement letters, costs disclosure documents, workplace policies and file-closing processes against the amended rules, not only firms newly captured by AML/CTF Tranche 2.

What do courts expect from AI-assisted filings?

Disclose AI use, verify the output, and take responsibility for what you file. Multiple courts and tribunals have now landed on that same basic expectation.

The Fair Work Commission's Guidance Note, effective 20 October 2026, requires disclosure of GenAI use in filings and independent verification of facts, legislation and quotes. The Administrative Review Tribunal introduced similar requirements in August, and Victoria's Supreme and County Courts had already adopted matching practice notes.

The message was reinforced in Ba v Sterling Parts Australia Pty Ltd, handed down on 1 July, where an unlawful termination claim was dismissed after the applicant relied on an AI chatbot to generate an evidence list referencing documents he could not produce.

Using AI does not transfer responsibility for accuracy. Unverified AI-assisted work can carry reduced evidentiary weight, adverse costs orders and regulator referral for disciplinary action.

What the profession is talking about

Six themes dominated the last 90 days beyond the three above, each reshaping how firms hire, price, comply and compete.

What is changing now, and what is next?