What are the critical limits on using Deemed Compliance provision?

Overview

Where the party you are not acting for won't cooperate with CDD, the "deemed compliance" provision (AML/CTF Rules s 6-33) can treat you as having met your initial CDD obligation on that party - but only if strict conditions are met. AUSTRAC's only published worked example sits on its "Initial CDD for trusts" page, though the provision applies more broadly, including to real estate counterparties.

What the provision actually requires

You are treated as compliant on the non-cooperating party only if all three of the following are satisfied:

All reasonable steps taken to establish the other party's identity, including through reliance arrangements where possible.
Full documentation of the steps you took and the difficulties you faced.
SMR consideration - you've considered whether a Suspicious Matter Report is required for that party.

The critical limits

1. It only applies to the counterparty. If the party you are contractually acting for (e.g. the seller, if you're the seller's agent) refuses ID, you cannot proceed at all. Full initial CDD on your own client must be completed before you provide the designated service. Deemed compliance is only ever for the other side.

2. "All reasonable steps" is a genuine test, not a single email. AUSTRAC expects multi-channel effort: a direct request to the buyer, written follow-up, a request via the buyer's representative (conveyancer or solicitor), and active consideration of a reliance arrangement. One unanswered email won't get you there.

3. Reliance is the preferred pathway, not a fallback. AUSTRAC specifically nominates reliance as part of what "reasonable steps" means. The cleanest route is to rely on the buyer's conveyancer's CDD - they're a reporting entity from 1 July 2026 and are doing their own CDD anyway. Two forms: case-by-case reliance under s 38 (no pre-existing agreement needed), and an ongoing CDD arrangement under s 37A (written agreement, giving "safe harbour" from liability for isolated breaches). AUSTRAC extended the timeframe for using KYC information previously verified by another party to a real estate transaction to 28 days in the final Rules, giving a workable window for the reliance handshake.

4. The SMR consideration is mandatory, not a box-tick. Refusal alone may or may not be suspicious, but combined with other red flags - large cash deposit, opaque beneficial ownership, third-party payment, unusual urgency, evasive answers - it can cross the "reasonable grounds to suspect" threshold. Once it does, an SMR is required within 3 business days for ML suspicions (24 hours for TF), and tipping-off rules apply - you can't tell the buyer or their representative you've filed.

5. Deemed compliance doesn't extend to the conveyancer. Even if you validly invoke it on the buyer, the buyer's own conveyancer still has their own CDD obligation on their client. The buyer doesn't escape verification - they just don't have to give it to you specifically.

What does NOT get you to deemed compliance

These fall short of the standard: a single unanswered email (insufficient effort); no attempt at reliance via the conveyancer (a reasonable step skipped); no documentation of attempts (no audit trail); no recorded SMR consideration; and ignoring red flags. If any required element is missing, you're back under the general rule: where you can't establish the required matters on reasonable grounds, you must not start providing the designated service, and an SMR must be lodged if you reasonably suspect the customer isn't who they claim to be.

AUSTRAC source links

Primary: Initial CDD for trust (Reform) - AUSTRAC's worked example; Overview of initial customer due diligence (Reform) - the general "must not provide" rule and SMR trigger; Amendments to the AML/CTF Rules - confirms the provision for real estate counterparties. Supporting: Delayed initial CDD (the 28-day framework); Real estate services (sector context); Reliance under CDD arrangements (s 37A); Reliance on a case-by-case basis (s 38).