Last Updated on August 3, 2023 by
Tracking a user’s transactions, like deposits, transfers, and withdrawals are referred to as transaction monitoring. The system will look for suspicious activities that might signal money laundering or even other types of financial crime.
Transactions flagged as suspicious by the monitoring program must be analyzed to see if the alert is real or fake. True findings should be reported to law authorities as an STR to alert them to possible money laundering or terrorist funding activities. For an extensive range of company sectors that really are subject to anti-money laundering legislation, continuous KYC solutions and transaction monitoring is indeed a legal necessity.
Transaction Monitoring Software
There still are various ways for a company to track customer transactions. Many aspects and considerations specific to the firm will influence the transaction monitoring system used, including:
- Size, diversity, and geographic reach are all factors to consider.
- Profile of the customer, including any intermediates
- Culture in the workplace
- Operational threat associated with it
Although money laundering authorities do not offer prescriptive recommendations on checking, there are a few things to keep in mind:
Authorities require a risk-based strategy for AML actions, comprising enhanced due diligence on high-risk clients, irrespective of the transaction control process a business adopts. When it comes to checking, this entails tailoring the process to the user’s risk profile.
Financial firms should alter the size and scope of their checking in accordance with the organizational risk analysis and client’s unique risk profiles, according to the FATF.
The FATF also recommends that continuous transaction monitoring or client due diligence be done on a regular basis or when specific transactions occur.
When the danger of money laundering is assessed as minimal, the JMLSG makes the argument of simplified due diligence, noting that the prevalence and severity of checking may be decreased below properly established criteria.
Where the danger is higher, however, enhanced due diligence methods, such as increasing the volume of reviews, are justified in order to adequately manage risk and gather additional intelligence.
KYC Transaction Monitoring Recommendations
Adopt Flexible Rule Building
Transaction monitoring relies on regulations, but they need to be updated on a regular basis to be as successful as possible at identifying suspicious conduct and understanding your transaction limitations. As a result, the transaction monitoring program enables autonomous rule creation and testing. Long timeframes, high operating expenses, poor monitoring, and a significant number of false positives will be avoided as a result of this.
Enhance Transaction Monitoring Software with AI
In the past, know your customer transaction monitoring systems depended on guidelines to detect unusual activity. For instance, if a consumer spends more than £10,000, a policy can trigger an alert. While guidelines are vital for identifying suspicious behavior, they can just catch what has previously been established about money laundering.
Conventional regulation-based transaction checking systems are simple to track and audit, but they are ineffective and inaccurate since thieves’ techniques are always evolving.
As a result, the transaction monitoring system should be upgraded using artificial intelligence, which can provide better insight and detect trends that rules can’t. This reduces the number of false negatives.
While companies are not forced by regulators to use AI for fraud detection, it is now widely recognized that AI is useful and important in the battle against financial fraud. AI can search through all data and spot strange transactions that humans can’t. In addition, AI can detect “unknown unknowns,” or the emergence of odd activities that violate the rules.
A Streamlined Transaction Checking and Should Start with the Client
A single picture of a user’s transactions is frequently useless. Know your transaction tracking must integrate diverse types of user data together to provide a ‘single view of each customer’ all across the full customer lifecycle in order to deliver meaningful intelligence and understanding.
The goal should be an end-to-end AML. While each organization’s approach will be different, the fundamental concepts remain the same:
End-to-end AML means establishing a fully linked compliance system to seamlessly interconnect the required money laundering legal standards of user screening and transaction monitoring.
This procedure can include additional best practice activities such as customer risk rating, client activity reviews, and sophisticated AML intelligence analytics, based on the regulatory complexity of the firm.
Final Thoughts
Any firm that comes under the mandate of money laundering legislation must conduct transaction monitoring. To identify unexpected suspicious behavior and provide analysts with critical understanding, transaction tracking should be supplemented with artificial intelligence. As the tactics of money laundering change, effective KYC services and transaction monitoring is required to detect any dubious transactions.
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