Everything About Transaction Monitoring

Transaction Monitoring means to observe the customer’s financial activity. It tracks the previous and current data of the customer transactions whether it is deposits, transfers, or withdrawals. Many companies utilize automated processes for monitoring unusual transactions. Automated processes help to analyze data quickly.

But depending on the machine too much is not good. It will be good if employees get a thorough interrogation if they find something fishy. Automation is effective and efficient. But being dependent on others is not good. However, they can utilize the TM in their business with a proper strategy for avoiding AML.

What is the Transaction monitoring process?

The TM process is a method to keep an eye on and record the financial activity of the customer past and present. It tracks records of deposits, transfers, and all withdrawals. The TM tool helps in detecting unusual activity through the analysis of data. It follows AML’s obligations to avoid financial fraud.

Many companies follow this process to keep an eye on the money transactions of all customers. After finding the suspicious activity further checking was done.

Here is the simple Transaction monitoring flow chart to understand it.

What Is AML And Transaction Monitoring In AML?

AML full form in banking is Anti Money Laundering. It is a set of rules and procedures that banks follow to prevent people from disguising illegally obtained money. Financial Institutions use TM as a tool to analyze and detect the unusual financial activity of customers. After suspecting illegal activities it gives indication such as AML.

In simple words, AML is about stopping people from using the banking system to hide their illicit money. Transaction monitoring is a process to keep eye on financial records for detecting AML.

Importance

TMS provides help to banks and financial institutions in

• Identifying suspicious patterns and behaviours in Customer transactions
• Helps in finding illegal activities like Terrorist funding and money laundering
• Protect banks from reputational damage and loses
• Assists financial institutions in meeting regulatory obligations.
• Helps financial institutions comply with regulatory requirements.

These are the benefits a financial take by incorporating automated tools for monitoring transactions.

Issues

The TM tool is good to incorporate for finding AML activities but it also shows some issues that should be checked regularly.

Incorrect Indications

TM tool gives red flags to many cases that do not require any verification. They are not of any concern. For further verification, a high operation cost goes into it. Due to so many unnecessary cases, many cases did not get reviewed properly. Less than 7% of cases are found suspicious. To avoid these, it is necessary to check the output and filter out all the unnecessary indications.

One Approach For Everyone

It treats all clients and activities with the same measurement. Due to this many false indications occurred. So, it will be good for the company to use an appropriate set of rules and filters to avoid unnecessary warnings.

Red flags in AML transaction monitoring

Red flags in transactional monitoring are warnings that indicate potential suspicious activities like

• Unusual Transaction process
• Unexplained sudden growth in wealth
• Helps in preventing banking fraud
• Transaction to high-risk countries
• Transaction to suspicious people

Types of transaction monitoring 

1. Rule-Based Monitoring: A set of rules to detect suspicious transaction activities. For example, huge money transactions to high-risk countries

2. Behaviour-based: an approach that detects the unusual financial activity of the customer.

3. Statics Modelling: This method includes statistical techniques to analyze data for detecting unusual transactional activities. This process involves a machine learning algorithm for detecting unusual behaviour.

FAQs

1. What is transaction monitoring in Anti-money laundering?

It is a process to detect unusual account activity and behaviour to prevent AML.

2. What is the difference between KYC and transaction monitoring?

KYC refers to knowing your customer, this process is used to verify the identity of clients, While the transaction monitoring process watches and detects illegal or suspicious behaviour in financial activities. KYC checks the authenticity of a person by verifying and detecting fake documents. KYC helps to prevent identity theft.

3. What is the benefit of AML Transaction monitoring?

The benefit of AML transactional monitoring, it helps banks detect and prevent money laundering, terrorist financing, and other financial crimes by identifying unusual activities.

4. How do you monitor suspicious transactions?

You can use automated tools to monitor and detect unusual account transfers and behaviour. But, it will be good practice to review tools and filter out unnecessary issues.

5. What factor influences the extent of transaction monitoring?

The extent of transaction monitoring depends on the tool, rules, and profile risk of the financial institution.