Level 1 in Australian Finance: 2025 Guide to Compliance & Strategy

Level 1 is a term you’ll encounter across Australian finance, banking, and regulatory landscapes. But what does it mean in 2025, and how does it impact your business or personal finances? Whether you’re navigating compliance, risk management, or simply want to understand the latest regulatory standards, this guide will walk you through the essentials of Level 1 in the context of Australia’s evolving financial ecosystem.

What Is ‘Level 1’ in Australian Finance?

‘Level 1’ is a classification used by Australian regulators and institutions to describe the most basic or foundational tier within a multi-level framework. The term appears in various contexts—from anti-money laundering (AML) compliance to risk management, and even in banking capital requirements. Understanding which ‘Level 1’ applies to your situation is crucial for meeting compliance obligations and staying ahead of regulatory changes.

• APRA Prudential Standards: The Australian Prudential Regulation Authority (APRA) uses Level 1 to define the individual entity level for regulatory capital and risk assessment, as opposed to Level 2 (group/consolidated level).

• AML/CTF Programs: The Australian Transaction Reports and Analysis Centre (AUSTRAC) mandates Level 1 and Level 2 anti-money laundering/counter-terrorism financing programs. Level 1 is for smaller, lower-risk businesses, with simplified obligations.

• Cybersecurity: In 2025, Level 1 often refers to baseline cybersecurity controls—critical for businesses seeking compliance with the latest updates to the Security of Critical Infrastructure Act and APRA CPS 234.

2025 Policy Updates: How Level 1 Standards Are Evolving

This year, regulators have raised the bar on what it means to be Level 1 compliant—particularly in the wake of recent high-profile data breaches and the Royal Commission’s ongoing influence on banking standards.

• Banking & Capital Adequacy: APRA’s 2025 updates to APS 110 and APS 111 mean Level 1 capital requirements for banks and ADIs now include stricter risk-weighting for digital assets and climate-related exposures.

• AML/CTF Expansion: AUSTRAC’s 2025 amendments require more detailed customer due diligence for Level 1 businesses, including enhanced identity verification and reporting for cryptocurrency transactions.

• Cyber Resilience: The updated CPS 234 standard now requires Level 1 entities to conduct annual penetration testing and report material incidents to APRA within 72 hours—a significant tightening of prior obligations.

For example, a fintech startup registered as a Level 1 ADI must now demonstrate not only minimum capital but also robust incident management and disaster recovery plans to maintain its license.

Real-World Impacts: Who Needs to Pay Attention?

Level 1 obligations affect a wide range of Australian organisations—from small family businesses to emerging neobanks. Here’s how:

• Small Businesses: If you’re a sole trader or partnership offering financial services, you likely fall under Level 1 for AML/CTF and cybersecurity. You must implement a basic AML program and meet the new minimum standards for data protection.

• Banks and Credit Unions: These institutions must distinguish between Level 1 (individual legal entity) and Level 2 (consolidated group) when calculating regulatory capital. The new standards require even small ADIs to manage digital risk at the Level 1 entity.

• Crypto Exchanges and Fintechs: With AUSTRAC’s 2025 focus on digital assets, Level 1 businesses in this sector are now required to perform real-time transaction monitoring and report suspicious activity more proactively.

Consider a Melbourne-based SME that recently expanded into online lending. Under the 2025 rules, it must treat its Australian operations as a Level 1 entity for APRA reporting—even if it’s part of a larger international group. This means stricter local compliance, new audit requirements, and the potential for higher operational costs.

Best Practices for Staying Compliant in 2025

Meeting Level 1 standards in 2025 is about more than ticking boxes. It’s about building resilience and trust with clients, regulators, and partners. Here’s what Australian businesses should prioritise:

• Update Policies & Procedures: Review your compliance documents and ensure they reflect the 2025 requirements for your sector.

• Invest in Training: Staff should understand their Level 1 obligations—especially in AML/CTF and cybersecurity. Regular training is key.

• Leverage Technology: Automated reporting tools, identity verification platforms, and real-time monitoring can help meet new Level 1 standards efficiently.

• Engage in Regular Audits: Schedule annual reviews to identify gaps and remediate them before regulatory inspections.

Ultimately, being proactive about Level 1 compliance is a smart investment. Not only does it help avoid penalties, but it also positions your business as trustworthy and forward-thinking in a competitive market.