Organizations often implement strict Anti-Money Laundering (AML) measures for protection against financial criminals. AML measures are also essential for financial institutions to maintain regulatory compliance. Regulatory bodies might impose penalties on financial institutions that do not follow the AML regulations.
Not to forget, a bank might lose its reputation in the market after a money laundering incident. Financial institutions often rely on transaction monitoring to prevent money laundering, fraud, and other incidents. Transaction monitoring has now become an indispensable part of finance operations for most entities. Continue reading to learn more about anti-money laundering transaction monitoring.
Demystifying the AML Transaction Monitoring Process
AML transaction monitoring refers to keeping a check on customer activity. It monitors withdrawals, deposits, transfers (domestic and cross-border), and other customer activities. Financial institutions usually have transaction monitoring systems for the task. These systems could be AI-led or rule-based. Monitoring systems can raise alerts for suspicious transactions in real-time, thus allowing finance professionals to prevent financial crimes. Once a customer shows suspicious behavior, concerned professionals check for money laundering, fraud, terror funding, or other illegal activity.
Anti-money laundering transaction monitoring systems check the payment location, total amount, frequency, timing, and other parameters. They might follow predetermined rules to separate legitimate transactions from illicit ones. Once the rule is violated, these systems raise an alert. It is now up to the finance professionals to delve deeper and find insights about the flagged transaction. These systems might generate false alerts at times for some transactions.
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Transaction monitoring is a continued process that helps financial institutions become more resilient to crimes. To collect customer details, AML professionals often conduct Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD). Updated customer details can help finance professionals analyze the associated risks. Similarly, AML experts document their findings and generate periodic reports. These findings allow the organization to prevent future financial crimes.
Guide to the Transaction Monitoring Process
Here is a step-by-step guide to the transaction monitoring process:
- Data Accumulation: AML experts cannot monitor transactions without ample data. For instance, AML experts need to know the usual payment location for a high-value customer. They can raise an alert when the payment occurs from an unusual location. Similarly, AML experts need to know other customer details to implement transaction monitoring. It is where CDD, EDD, and KYC (Know Your Customer) help financial institutions collect updated customer details.
- Set Thresholds: AML experts must decide on the thresholds for transaction monitoring. Transactions can be flagged by monitoring systems based on the predetermined thresholds. For instance, a bank can flag all transactions above USD 1 million to avoid risks. Similarly, thresholds are decided for payment frequency, location, and other parameters.
- Continuous Monitoring: Once AML experts have decided on the thresholds, it is time to implement rigorous monitoring policies. AML experts do not have to monitor each transaction by themselves, as it is done by advanced digital systems.
- Looking After Alerts: AML experts must analyze the alerts generated by transaction monitoring systems. These alerts are generated for suspicious transactions that might be linked to financial crimes. Besides separating false alerts, AML alerts delve deeper into detecting the associated financial crime with a suspicious transaction.
- Reporting: Anti-money laundering transaction monitoring involves documenting the incidents and generating reports. These reports are used by the organization to combat future financial crimes.
How to Implement AML Transaction Monitoring?
Are you planning to implement anti-money laundering transaction monitoring measures? If yes, you need advanced monitoring systems and in-house AML experts. However, this could cost the financial institution a fortune. Luckily, firms have the option of third-party transaction monitoring services. Firms can partner with reliable third parties and outsource their transaction monitoring processes. It can help firms save on recruitment, training, technology deployment, and other tasks. For example, Acuity Knowledge Partners is one of the most reliable firms for AML transaction monitoring services. You can make your firm more resilient to financial crimes and avoid reputation risks.
In a Nutshell
AML transaction monitoring has become a necessity in today’s era. Firms can prevent money laundering, terrorism funding, and other crimes with the help of transaction monitoring. Not to forget, firms can also meet AML regulations laid out by the concerned authorities. Firms facing issues with transaction monitoring can always look for third-party support. Time to implement AML transaction monitoring measures now!
