AML (Anti Money Laundering) transaction monitoring is usually done through software that allows financial institutions to monitor the transactions of their customers in real-time with the purpose of analyzing risk. Information obtained is basically combined with historical information analysis and account profile analysis. Software offers financial institutions an idea about the profile of the customers, associated risk levels and future activity prediction. Reports can be generated and suspicious activity can be alerted. Transactions that are monitored include cash withdrawals, deposits, ACH activity and wire transfers.
Transaction monitoring software in AML includes blacklist screening, customer profiling and sanctions screening. Analysis is usually obtained in order to meet with AML and CFT requirements or filing SARs (suspicious activity reports).
There are regulators that make the use of transaction monitoring a regulatory requirement. In other locations, this is just optional.
Transaction Monitoring – How Does It Work?
The steps that are needed in transaction monitoring are usually the next:
- Identifying the suspicious behavior – This is done at an end-customer and FI level.
- Increase automation – This minimizes the alters that are not necessary by simply tailoring the scenarios so that risk is reduced.
- Give confidence – This is needed for both banking partners and regulators through the use of an audit system that is effective.
- Increased effectiveness – This is done in time, as information is gathered.
- Fast implementation – The transaction monitoring that is implemented needs to be secure, easy-to-use and fast.
The Risk-Based Approach
To put things as simple as possible, the risk-based approach is that the financial institution uses intensive measures in order to manage client risks or the scenarios that are deemed as being high-risk. With the low-risk scenarios and clients, because there is no money laundering suspicion, there are simplified measures that are permitted.
In order to apply the risk-based approach, institutions and countries have to take specific steps to assess money laundering risks and identify terrorist financing. This is needed for various market segments, products and intermediaries and has to be a true ongoing practice.
Does Your Business Need Transaction Monitoring?
If you are a bank, it is quite clear that transaction monitoring for AML reasons is mandatory. However, for other businesses, this is not actually the case. The list of the types of businesses that have to respect AML laws and implement KYC procedures can easily be obtained. If the type of company that you run is listed, compliance is mandatory. Failure to do this will automatically lead to huge fines. In rare situations, it can even lead to jail or closing the business.
In the event that the business is not required by law to respect AML laws, it is still a good idea to consider transaction monitoring software. This is because it will help you to easily identify situations that are bad for your business. For instance, you can see when there are many customers that did not pay their invoices for a long time. If this is the case, you might end up having to deal with a financial crisis in the future and can properly prepare for it.