Monday, 2 June 2025 As Australia’s real estate sector prepares for the implementation of Tranche 2 Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reforms, one of the most pressing strategic decisions for large franchise networks is whether to form a Reporting Group. This decision carries significant implications for compliance, cost, operational efficiency, and reputational risk. The case for reporting groups The pro-reporting group argument is rooted in efficiency, cost-effectiveness, and risk mitigation. Efficiency gains: A single reporting group can streamline AML/CTF obligations by consolidating key compliance functions. This includes having one AML/CTF Program, one AML Compliance Officer (AMLCO), and one Independent Evaluation Review. It can also simplify Know Your Customer (KYC), Threshold Transaction Reporting (TTR), and Suspicious Matter Reporting (SMR) processes. Cost reduction: Centralising compliance reduces duplication of effort and associated costs. For example, implementing a single RegTech solution across the group can standardise procedures and reduce technology spend. Further, reputational risk is better managed when compliance is uniformly enforced. Legal risk management: A reporting group structure can help avoid “tipping off” breaches by enabling secure information sharing within the group under a unified AML/CTF policy framework. The case against reporting groups Conversely, arguments against forming a reporting group focus on the legal, operational, regulatory, and cultural pitfalls of centralisation. Liability: Under the AML/CTF Act reforms, lead entities of reporting groups (i.e. the franchisor) will be liable for civil penalty provisions contravened by reporting group members (i.e. the franchisees). This makes compliance by franchisees an even more considerable responsibility for franchisors. Loss of accountability: Centralisation can blur lines of responsibility. When one office fails to comply, the entire group may suffer consequences. Confusion over roles may lead to non-compliance and even regulatory fines. Operational inefficiencies: Smaller franchisees may face delays due to centralised approval processes. This slows down responsiveness to regulatory changes, increasing the risk of non-compliance. One-size-fits-all may not fit all: Franchisees in urban areas may face higher transaction volumes and more complex client profiles, while rural offices may operate on a smaller scale. A uniform compliance framework may overburden lower-risk offices and under-serve high-risk ones. Franchisee frustration: Imposing rigid compliance structures can alienate franchisees, especially when they feel their local context is ignored. This can lead to disengagement and of course, lower compliance. A middle ground: the hybrid model Recognising the limitations of both extremes, a hybrid model may be the answer: a model that does not formally set up a reporting group, but does apply assurance over the network to manage the risk of non-compliance by franchisees. In this approach, a franchisor would provide overarching AML/CTF guidance and tools, while franchisees retain autonomy in implementation. This model offers: Flexibility and scalability: Tailors compliance to local risk profiles. Improved accountability: Clear division of responsibilities. Efficient resource allocation: Central teams develop systems; local teams execute. Faster adaptation: Local offices can respond quickly to changes. However, a franchisor would still need to apply a degree of oversight of the franchise network to protect the reputation of the brand. This introduces potential third-party management and oversight requirements to satisfy that compliance obligations are being met. Strategic alignment The decision to form a reporting group should not be driven solely by the promise of efficiency. While centralisation offers clear benefits in terms of cost and standardisation, it also introduces risks related to accountability, adaptability, and franchisee engagement. Ultimately, the right path depends on the organisation’s structure, culture, and risk profile. For large, tightly integrated networks, a reporting group may be a logical step. For more diverse or loosely connected franchises, a hybrid model may offer the best of both worlds. In the end, the question is not just whether to form a reporting group, but how to ensure that whatever decision is chosen, it genuinely strengthens AML/CTF compliance in a meaningful and sustainable way and reduces the risk of the business being used to launder money.