Transaction Monitoring is an essential component of an Anti-Money Laundering program that all financial institutions must have under the Bank Secrecy Act. Transaction Monitoring is the process of monitoring customers’ transactions such as transfers, deposits, and withdrawals. In addition, Transaction Monitoring attempts to identify suspicious behavior that may indicate other financial crimes occurring, such as money laundering and terrorist financing.
Organizations with ineffective or traditional Transaction Monitoring solutions also have very challenging compliance processes, and more importantly, organizations can be subject to penalties for failing to comply with regulations.
Transaction Monitoring Challenges
Ready-to-Use Rules can be applied in the Transaction Monitoring system. These rules can make the institution’s job much easier, but because they are not prepared according to the institution’s risk appetite, big problems may arise.
Traditional Transaction Monitoring systems get it wrong in 90 percent of cases. This data is huge, and the cost to organizations of false positives cannot be ignored. The highest cost is a waste of time. False positives come at a huge cost to manpower.
Cheat System Thresholds
It is not difficult to deceive static, rule-based Transaction Monitoring systems by operating within certain thresholds. Unfortunately, this is one of the areas where traditional, outdated, and reactive rule-based AML systems are particularly problematic. As a result, highly suspicious activities go undetected as sophisticated criminals run their operations under the rule radar.
Data Hinders AI deployment
A truly effective Transaction Monitoring system that leverages the power of Artificial Intelligence (AI) will rely on a single source of truth for all data. AI needs to be an integral part of your AML strategy, so ignoring weaknesses in your data is not the right option. Preparing data for AI deployment is not a rushed process. Data must be collected carefully, and attention must be paid to any signs of corruption.
Confusion from Different Regulatory Approaches
Different regulators have different views on what is acceptable in Transaction Monitoring adds to compliance challenges. It is essential to know exactly what your regulatory obligations are
Fintech companies have also faced operational challenges due to the pandemic. Regulators have begun to worry about compliance within FinTech firms due to their growing popularity and growth. In addition, regulators are concerned that Neobanks’ AML Compliance Processes are not meeting their targets, leaving them vulnerable to abuse by criminals. Therefore, regulators took new regulatory steps against institutions such as Fintech and Neobank companies. Inspections were made in this area, and some institutions were penalized for lack of Customer Due Diligence and for closing backlogs in Transaction Monitoring.
AML Transaction Monitoring Has Become Challenges
Change is steady, but the COVID-19 pandemic has dramatically accelerated pacemaking. As a result, ıt is more complex than ever for financial institutions.
Entering 2020, consumers were slowly but surely moving towards digital-first consumerism. Once the pandemic hit, most consumers took a full leap in that direction. The mindset of COVID-19 has further convinced consumers of the convenience and advantages of a digital-first lifestyle. Unfortunately, the entry into the digital world has increased the risks of fraud.
In the physical world, financial scammers need to interact with another person and present a debit or credit card. However, in the digital world, this personal interaction has completely disappeared.
Criminals don’t need to steal a card to cheat in the digital world. Instead, individuals’ bank account credentials are compromised by internet fraud techniques. Once inside, criminals gradually take over the account, where they change a notice, update a contact number there, and eventually neutralize the legitimate account holder on the card. Detecting this activity is quite complex with traditional methods, so an AI-powered Transaction Monitoring solution is vital.
Is Transaction Monitoring Required for Anti-Money Laundering Compliance?
Authentication, Suspicious Activity Reporting, and Sanctions Screening are vital parts of Anti-Money Laundering Compliance. But without robust, it, which takes full advantage of today’s advanced functions such as real-time processing and behavioral analysis, the AML Compliance program would be incomplete. Without them, your organization faces more risk, more work for compliance staff, and more friction that negatively impacts the experience of legitimate customers.
How Can Financial Institutions Deal With AML Transaction Monitoring Challenges?
Transaction Monitoring Software helps financial institutions monitor their clients’ transactions and is the most effective way to combat financial crimes. Also, it helps companies comply with Anti-Money Laundering (AML) / Counter Financing of Terrorism (CFT) regulation and support AML Compliance Programs.
Sanction Scanner monitors millions of transactions in real-time and can easily scan to detect suspicious transactions. If the software detects a suspicious process, it stops and saves the process for review. This allows businesses to quickly strengthen their AML and CTF defenses. Some unique features of Sanction Scanner;
- With the rule-writing feature, you can set rules and create scenarios.
- It helps you reduce false positive alarms, focus on the right alerts, and reduce your workload.
- Depending on your scenarios and rules, you can see suspicious alarms instantly, and you can see alarms according to risk levels (1-5)
- Your customers’ job, age, income, etc. You can determine risk scores according to criteria and define alarms (low, medium, high, critical) according to your customers’ risk levels. You can also set Transaction Rules according to the risk scores of your customers.
- With the Transaction Analysis feature, you can examine the trading of accounts with each other and view the Account Name, Volume, Balance, and relations of each account.
- You can define some criteria according to the requirements and assign risk scores according to your customers’ profession, age, income, etc. criteria. You can define low, medium, high, and critical alarms based on these scores, or you can write Transaction Rules based on these Customer Risk Scores.
April 22, 2022 Published by The Sanction Scanner. (Link to Article)