- Why is Transaction Monitoring Important?
- AML Transaction Monitoring – The Flow of Events
- Transaction Monitoring Software in Today’s Digital Milieu
- FATF Recommendation Mentions of SARs and STRs
- Red-Flag Generation Via Machine Learning Algorithms
- Potential Transaction Monitoring Red-Flags
- Transaction Monitoring and Client Screening Solutions
Why is Transaction Monitoring Important?
With an increasing number of touchless payment methods overwhelming the market, risks and financial crime experts are on the go with introducing extra vigilant AML methods of risk mitigation. As a result, AML-CFT compliances like KYC, due diligence, Sanctions screening, and Transaction Monitoring have emerged as inevitably important compliance standards. In addition, there are regulatory penalties for AML non-compliance, and filing suspicious reports is a crucial part of fulfilling AML obligations.
An end-to-end Transaction Monitoring solution analyses client transactional activities and matches them with their historical data and onboarding profile to determine the risk levels. In this blog, we will discuss why Transaction Monitoring has become the need of the hour and various peripheries involving transaction tracking and reporting suspicious activities to avert serious money laundering and terrorism crimes.
AML Transaction Monitoring – The Flow of Events
- Transaction Monitoring fulfills the AML-CFT, KYC, and due diligence requirements of the financial and obligatory non-financial institutions.
- It’s an ideal AML system that monitors the transaction patterns of businesses on rule-based, preset scenario models.
- The engine generates an alarm every time an activity trespasses a rule.
- The Transaction Monitoring analyst then scrutinizes the transaction pattern, generating a Suspicious Transaction Report (STR) or Suspicious Activity Report (SAR).
- The SARs and STRs are then filed with the respective state’s Financial Intelligence Unit (FIU), which takes necessary actions to determine whether there is a threat.
Transaction Monitoring Software in Today’s Digital Milieu
An effective Transaction Monitoring Solution must protect all financial and non-financial institutions using non-face-to-face methods for client onboarding and payments. Banks, money service businesses (MSBs), payment gateways and processors, legal, accounts, property agents, and insurance fall under this ambit.
For banks and financial institutions, Transaction Monitoring covers cash payments, deposits, withdrawals, ACH payments, wire transfers, currency exchange, credit extensions, UPI modes, and national and international payments. In addition, with an increasing number of Virtual Assets Service Providers (VASPs), suspicious transfer monitoring calls for both fiat and cryptocurrency modes of payments.
FATF Recommendation Mentions of SARs and STRs
Transaction Monitoring, also known as Client Screening, is an inevitable responsibility that any obligatory business must accomplish to meet national and international regulations. The Financial Action Task Force (FATF), in its 20th Recommendation, describes the importance of the Suspicious Activity Report (SAR) and the Suspicious Transaction Report (STR) as part of suspicious report filings related to Transaction Monitoring. The FATF mentions instant SAR and STR filings from regulated institutions to FIUs and financial authorities.
Any delay in SAR and STR filings may invite threats to the AML-CFT safety standards of the enterprise and the state. Therefore, irrespective of the scale of the transaction, the institutes must report all untoward transactional incidents without delay to deter grave money laundering or terrorism financing threats. Therefore, in number IV of the FATF CFT Recommendation IX, reporting suspicious transactions related to terrorism has been made compulsory for financial firms.
Red-Flag Generation Via Machine Learning Algorithms
A comprehensive Transaction Monitoring system scans the financial activities in real-time; hence any suspicious behavioral patterns breaking the preset rule and scenario model are tracked/caught in real-time. For example, suspicious money transfers, unexpected inflow or outgoing cash, vague foreign payments, uneven business profits, etc., raise automated AML alerts.
There are rule-based prehistorical datasets and scenario models, and the engine is mostly customized to suit business-asset monitoring requirements. An AML Transaction Monitoring system also provides legislative solutions and screens the clients against sanctions, embargos, blacklists, and other watchlist data sources.
Potential Transaction Monitoring Red-Flags
- Payment transactions exceeding preset thresholds within the system
- Transaction frequency over a particular period
- Uncanny behavioral pattern, sudden inflows or outflows of payments
- Transactions made with people, organizations, and nations are mentioned in the OFAC, HMRC, UN, EU, or other Sanctions lists.
- Transactions unmatching with the client product, onboarding profile, and historical data
- Client showing a high risk on the current Adverse Media updates
- Business relations with high-risk countries
- Politically Exposed Persons (PEPs) are prone to money laundering and corruption owing to their powerful positions. Transactions to and fro PEPs are subject to tightened scrutiny.
Today, most financial and other regulated firms rely on Artificial Intelligence (AI) based Transaction Monitoring systems on combating money laundering and terrorism financing. Machine Learning powered AI algorithms determine suspicious transaction patterns by screening bulk data within seconds. Alarms are generated whenever the system detects anomalies in the activity patterns. False positives are continuously sifted in the patterns to figure out the final red flags considered to be crimes and to be filed as SARs and STRs.
Transaction Monitoring and Client Screening Solutions
IDMerit extends IDMaml & IDMkyX
An all-inclusive Transaction Monitoring mitigates money laundering risks related to fraud, terrorism financing, funding weapons of mass destruction, drug trafficking, bribery, corruption, and identity theft.
IDMerit’s state-of-art AML Compliance Program IDMaml offers broad-spectrum Transaction Monitoring Solutions to businesses that require mass-onboarding and big-scale transaction tracking solutions. Avail customizable Transaction Monitoring solutions, set your own dynamic rules and red-flag scenarios, and test them in our sandbox environment.
You may also book a demo for our premium IDMkyX product AML-KYC range of solutions and avail yourself of complete customized, end-to-end AML-KYC and Transaction Due Diligence solutions for your business.