What happens if I don't meet AUSTRAC's fit-and-proper requirements? Does my business have to shut down?

Overview

Closure is a last resort, not the default - it's unlikely to be required. The fit-and-proper test is a holistic assessment, not a checklist, and even where the principal can't pass it there are legitimate ways to keep operating as a reporting entity.

The rule

Before appointing an AML/CTF Compliance Officer, you must determine whether they're fit and proper. Section 26J(2) of the Act requires you to consider a list of factors - competence and soundness of judgement; good character, honesty and integrity; convictions for a serious offence; adverse or serious misconduct findings by a regulator; current bankruptcy or personal insolvency; and material conflicts of interest. AUSTRAC's language is "must consider all of the following", not "must satisfy all of the following" - a holistic weighing exercise where severity, recency, materiality and available controls all matter.

Unpacking the criteria

"Serious offence" has a defined meaning - broadly, offences punishable by 12+ months' imprisonment; minor offences, civil matters and traffic infringements aren't in scope. Adverse regulatory findings are weighed against recency and remediation. Bankruptcy is assessed at a point in time - current bankruptcy raises different concerns than a discharged one from years ago. Conflicts of interest rarely disqualify on their own and are usually managed through declarations, recusal and oversight.

Four practical routes through

Outsource the CO role - AUSTRAC explicitly allows this. You remain legally liable as the reporting entity, but you don't need to be the fit-and-proper person yourself.
Bring in a fit-and-proper second person - a co-director, partner, qualified employee or trusted appointee; particularly viable if moving from sole trader to a Pty Ltd or partnership.
Document mitigations and proceed - where the issue is historic, remediated or low-materiality, complete and document the assessment, the matter, the mitigating factors and any additional controls (independent review, oversight, recusal). The Act requires the assessment to be considered and recorded, not that every factor is clean.
Lean on existing licensing tests - if your industry regulator has assessed and licensed you post-event, that's evidence a sectoral fit-and-proper test has been satisfied. AUSTRAC has signalled formal recognition of existing tests is coming in late 2026.

The police-check question for sole traders

AUSTRAC doesn't strictly mandate a police check - what it requires is a documented fit-and-proper assessment before appointing anyone as CO, including yourself. A National Police Check (about $50, 1-2 days online) is the cheapest, most defensible single piece of evidence, but it's one method among several, not a mandatory step. Self-attestation alone is the weakest possible record. If your industry licence already required an NPC (real estate, conveyancing, legal, tax/BAS), you can rely on that - record the licence number, issuing authority and date. AUSTRAC also accepts that a sole trader can fill the governing body, senior manager and CO roles simultaneously. Note a different rule for VASP/remittance registration: a current NPC is separately required for each key person, issued within 6 months of applying.

When closure actually applies

The genuine shut-down scenario is narrow: a person with a current, serious, AML-relevant disqualifying factor (e.g. an active conviction for a serious financial-crime offence, current regulatory disqualification, or current bankruptcy) who cannot engage an external CO, cannot bring in another fit-and-proper appointee, and has no existing industry licensing test to rely on. Most firms worried about this are well inside the manageable range. AUSTRAC is a risk-based regulator: the test is whether a capable, accountable, integrity-sound person oversees AML obligations, not whether the principal has a flawless record. If you have concerns, contact AUSTRAC directly. Legislative references: AML/CTF Act 2006 ss 26J(2), 26J(3), 26K; AML/CTF Rules s 5-7.