Transaction monitoring
TMAlso called AML transaction monitoring, transaction surveillance
Transaction monitoring is the review of customer transactions to detect activity that may involve money laundering, terrorist financing or fraud. Systems compare payments with rules, scenarios or models and raise alerts on unusual patterns. Analysts investigate the alerts and report suspicious activity to the financial intelligence unit where required.
How it works
Most firms run a mix of rules and models over payment data, either in real time or in overnight batches. Scenarios look for patterns such as structuring below reporting limits, rapid movement of funds, or activity that does not fit the customer's profile. Each alert goes to an analyst, who reviews the customer and transactions and either closes it or escalates it to an investigation.
Anti-money laundering rules require ongoing scrutiny of transactions throughout the customer relationship. In the US, banks must file a suspicious activity report within 30 days of detection. New York's Part 504 sets detailed programme standards and an annual certification. Weak monitoring, large alert backlogs and untuned scenarios are recurring findings in enforcement cases on both sides of the Atlantic.
The rules
Requires firms to identify and verify customers and beneficial owners, and to conduct ongoing monitoring including scrutiny of transactions throughout the relationship.
UK banks, payment firms, accountants, lawyers and other relevant personsRequires customer identification and verification from reliable independent sources, and ongoing monitoring of the business relationship including scrutiny of transactions.
EU credit and financial institutions and other obliged entitiesRequires banks to file a suspicious activity report within 30 calendar days of initial detection of facts that may be a basis for filing.
US banksRequires a risk-based transaction monitoring programme with documented scenarios, thresholds and assumptions, pre- and post-implementation testing and an annual compliance certification.
New York-regulated banks, branches of foreign banks, check cashers and money transmittersCommon questions
What is the difference between real-time and batch monitoring?
Real-time monitoring checks a payment before or as it is processed, so it can be stopped. Batch monitoring reviews transactions after the event, often overnight, looking for patterns across days or weeks. Many firms use both.
Why do transaction monitoring systems produce so many false positives?
Scenarios are set broadly so suspicious activity is not missed. Without good customer segmentation and tuning, legitimate activity often crosses thresholds. As a result, most alerts at many firms are closed as not suspicious.
Is transaction monitoring the same as sanctions screening?
No. Sanctions screening checks names and payment details against sanctions lists, often before a payment is made. Transaction monitoring looks for suspicious patterns of behaviour across a customer's activity.
Who is responsible for transaction monitoring?
In the UK, the money laundering reporting officer receives internal reports and decides whether to report to the National Crime Agency. Senior management are accountable for the adequacy of the firm's monitoring systems.
Our coverage
News and analysis on transaction monitoring from RegTech Post.
Read the coverage →RegTech PostReal-Time vs Batch AML Monitoring: Key Differences for Compliance TeamsRead the article →RegTech PostMonzo Compliance Failure Highlights Risks for Fast-Growing FintechsRead the article →
