Third-Party Reliance: Using Another Firm's KYC
Can you rely on customer identification performed by another firm? Yes, but only under strict conditions set out in Section 37A. Get it wrong and you are responsible for the failure.
What is third-party reliance?
Third-party reliance allows you to accept customer identification (KYC) performed by another reporting entity, rather than conducting it yourself. This includes beneficial owner identification and other CDD measures. This can be useful when:
- A client is referred from another professional
- Multiple professionals are working on the same transaction
- You are part of a professional network or group
Conditions for reliance (Section 37A)
All conditions must be met
- The third party is a reporting entity: They must be enrolled with AUSTRAC and subject to AML/CTF obligations
- Written arrangement in place: You must have a formal arrangement that permits the reliance
- CDD was conducted to the required standard: The third party must have applied appropriate CDD measures
- Records available on request: You must be able to obtain copies of the CDD records promptly - see record keeping requirements
- You remain responsible: Ultimate responsibility stays with you - reliance does not transfer liability
Who can you rely on?
Acceptable third parties
- Other law firms (reporting entities)
- Accounting firms (reporting entities)
- Real estate agencies (reporting entities)
- Banks and financial institutions
- Other Tranche 2 reporting entities
Cannot rely on
- Non-reporting entities
- The client themselves
- Unregulated third parties
- Entities in high-risk jurisdictions (special conditions)
The written arrangement
Your reliance arrangement should address:
- Scope of reliance (which CDD elements)
- Confirmation the third party is a reporting entity
- Timeframe for providing records on request
- Confirmation of CDD standards applied
- Notification requirements if issues arise
You remain responsible
Critical point: reliance does not transfer responsibility. If the third party's CDD was inadequate, you are still liable for failing to properly identify your client. Reliance is a convenience, not an escape from obligation.
Practical example
Scenario: Lawyer-to-lawyer referral
A client is referred to you by another law firm for a property matter. The referring firm has already completed full KYC on the client for a previous matter.
To rely on their KYC, you must:
- Confirm the referring firm is enrolled with AUSTRAC
- Have a written reliance agreement in place
- Obtain confirmation of what CDD was performed
- Request copies of the CDD records
- Assess whether additional CDD is needed for your matter
Remember: You must still conduct your own risk assessment and may need to supplement the third party's CDD.
Key Takeaway
Third-party reliance under Section 37A allows you to use another reporting entity's KYC, but only with a written arrangement and where all conditions are met. You remain responsible for compliance - reliance is not a safe harbour.
Read our complete Tranche 2 Guide
Key dates, affected sectors, obligations and how to prepare
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