How to be sure your service is not abused for illegal transactions? If a client has found a way to carefully launder their illicit funds through an oblivious business, both of them are going to be taken to the court. The criminal will be charged for money laundering, the business will be charged for failing to spot the issue at its root.
To manage this exact issue, financial institutions use transaction monitoring software to analyze every cash deposit, wire transfer, and withdrawal 24/7.
What is transaction monitoring?
To put it simply – is a necessary AML and fraud prevention security process. Transaction monitoring software spots suspicious patterns and reviews dubious transfers and transactions made in digital or fiat currencies. As a result, it exposes the problem — where did the money come from and where are they going, are they legitimate funds or were obtained illegally?
Anti-money laundering transaction monitoring software then generates reports on these transactions and assigns a risk-level to customer profiles of those who made the transfers. The results of the findings are often enough to predict a client’s further activity and determine if they are a threat.
Transaction monitoring is a helpful tool used to eliminate financial fraud, money laundering, terrorism financing, and evasion of international sanctions.
What is the scope of transaction screening?
So, what this AML analysis extends to? Let’s look at some of the examples of activities that need to undergo transaction monitoring.
- wire transfers between accounts;
- withdrawals and deposits;
- ACH network activities;
- currency exchange;
- credit extensions;
- any other payment, transfer, by, through, or to a bank.
All in all, the monitoring of transactions has to be carefully performed on any monetary activities.
What is the process?
AML transaction monitoring is quite a complicated and demanding process that can’t be performed manually. The process may vary according to the demands of a specific entity, but the key elements are rather common.
- Monitoring of transactions beyond a certain threshold;
- Client assessment;
- Blocklist and sanction list screening;
- Risk level assignment;
- Delivery of an end-report.
Naturally, transaction monitoring is not the only thing to worry about, it is a part of a bigger picture that requires a combined approach for truly effective risk management.
Transaction monitoring is not enough
AML monitoring of transactions is an integral part of any AML policy. Usually, financial institutions employ a combined risk prevention solution to customer accounts — an all-round AML check.
1. Scanning for suspicion
Upon registering, the client’s profile enters the bank’s KYC/CIP database where it is scanned for red flags and PEP.
2. Analyzing and opening an account
When the system gathers all the necessary information on a customer, it opens the account.
3. Ongoing checks
Transaction monitoring mechanism repeatedly checks the activity happening on the account activity, screens for risk patterns, and searches for inconsistencies.
The EU’s AML directive demands full-fledged measures for consistent risk prevention and asks to gather a satisfactory amount of data on all clients.
The best approach is risk-based
The approach elevates risk management to a higher level in order to prevent unwanted dangerous money laundering or terrorist financing incidents.
The AML/CFT measures that need to be taken as a part of this approach usually depend on a financial institution’s business complexity, operational and geographical diversity, type of customers, product, distribution channels, size of the transactions, etc. Of course, rules that apply in the US might not apply to the businesses in China, so companies have to be aware of the demands of their region.
Adopt it for the benefits
Transaction monitoring actually helps businesses to work, develop, and grow. It adds to their reputation and enhances security.
- No false alerts. Having analyzed the user’s profile it is able to understand a fine line between normal and abnormal for a specific case.
- 24/7 vigilance. Transaction monitoring software scans for suspicious behavior happening both in real-time and retrospectively. The system looks into your historic transaction data and other contextual profile or behavior data.
- Business trustworthiness. Partners and regulatory authorities are left reassured of your robust investigatory and risk prevention solution.
- Transparent reports. The software makes it easy to understand the cause and investigate the fraudulent activity by combining entity, retrospective, and peer analysis into a comprehensive report.
Transaction monitoring system is an essential AML feature and something that all newly-established companies and big corporations need to adopt for their customer safety and own security.