Transaction Monitoring

Financial institutions are faced with particular Anti Money Laundering (AML) obligations when they deal with partner entities and customers. Transaction monitoring is one such requirement that is applicable to prospects posing a significantly higher amount of risk to a business. As part of the Countering the Financing of Terrorism (CFT) standards, it helps in customer profiling as well as risk management at an organizational level. 

What is Transaction Monitoring?

Transactions Monitoring is the process through which banks and financial entities regularly check on their customers for any possible high-risk transactions. It takes into account the background and financial profile of the end-user to properly assess the risk level and predict future transactional activity. Since transaction monitoring is done in realtime, it can also generate a Suspicious Activity Report (SARs) based on the user’s actions and send it to regulatory authorities for further investigation. 

What are the Criteria for AML Transaction Monitoring?

To take down financial crime, a risk-based AML approach is necessary to monitor customer transactions. Usually, transactions like bank deposits, cash withdrawals, ACH, and wire transfers are considered during AML transaction monitoring. The process also includes screening of customers against FATF greylists and blacklists, PEP lists, and other profile-based checks on the customer. This analysis is carried out to meet AML/CFT requirements and to fulfil reporting obligations set forth by financial watchdogs.  

Why is Transaction Monitoring (TM) Important?

• It helps detect suspicious activities on the customer’s end that may lead to potential money laundering. Monitoring transactions helps identify loopholes in the financial system of the organization as well.
• An AML software purpose-built for transaction monitoring allows enterprises to reduce needless red flags by taking into account the nature of transactional risk in light of state-of-the-art regulations.
• TM can be carried out without the need for constant tech support since monitoring systems become effective over time.
• Transaction monitoring can help a business earn a good reputation in the eyes of financial partners and regulatory authorities by maintaining a comprehensive audit trail of all transactions.

What is Know Your Transaction (KYT)?

In the banking industry, KYC or Know Your Customer is mandatory for customer identity verification that businesses perform during onboarding. Similar to KYC, a Know Your Transaction (KYT) process consists of verifying transactions performed by customers to assess the overall risk, detect potential financial crime, and streamline business relationships. Businesses practicing KYT standards mean that they have all relevant data related to their customers’ transactions that can be used by regulators to prevent money laundering. 

Some financial transactions monitored during Know Your Transactions are:

• Cash-based payments
• Transactions done through credit or debit cards
• Transactions across borders
• Letter of Credit (LC) transactions
• Trade-related transactions
• Remittance transfers

An identity verification solution based on Know Your Transaction (KYT) can allow businesses to verify transactions as well as customer identities at the same time. With efficient and reliable IDV to monitor transactions and end-user activities, online payments can be carried out through a safe and secure channel in real-time. 

What is a Transaction Monitoring System (TMS)?

Financial organizations these days use a Transaction Monitoring System (TMS) that is built on risk-based AML criteria. With a TMS, businesses are able to track customers’ transactions more effectively in real-time by evaluating their credit history and profile. In this regard, the information acquired during the KYC process can be used by the TMS to better understand the risk associated with the client. Once the risk measures are identified, the transaction monitoring software can use them in the AML compliance checklist and identify account-specific activities in the future. An automated TMS can also generate SARs and file them to responsible authorities. 

Suggested Reads:

Know your transactions (KYT) boosts your KYC efforts

Shufti’s Ongoing AML Solution to Prevent Transaction Laundering