Companies, banks and other financial service providers are required by financial rules to watch transactions for signs of money laundering. Automated transaction monitoring can help your organization comply with anti-money-laundering (AML) regulations while avoiding the expense, high error rates and complexity of manual transaction monitoring.
Automated transaction monitoring uses advanced analytics to find suspicious financial transactions, such as unusually large transfers, multiple small payments to the same recipient or international transfers that don’t fit the customer’s usual patterns.
In this article, we will explore how automated transaction monitoring works and the role it plays in helping corporations and banks comply with AML regulations.
Transaction Monitoring and AML Compliance
AML regulations, including the Bank Secrecy Act (BSA) and the USA Patriot Act, require organizations to implement policies and procedures to detect, monitor and report suspicious activities that could signal money laundering or terrorist financing.
Transaction monitoring tracks and analyzes customer activity to identify suspicious transactions or behavior patterns that may indicate fraud or money laundering. This process plays a vital role in AML compliance.
However, the volume and velocity of transactions in today’s financial ecosystems make manual transaction monitoring too labor-intensive and expensive to be practical. The challenges associated with manual transaction monitoring include:
- The cost of hiring personnel to review transactions manually
- The potential for human error
- The potential for missing red flags due to lack of experience or training
- The time involved in analyzing large volumes of data
- The inability to quickly react to changing customer behavior
Automated transaction monitoring uses sophisticated analytics engines to flag potentially suspicious transactions for further scrutiny, significantly reducing the cost and complexity of compliance.
What is Automated Transaction Monitoring?
Automated transaction monitoring solutions integrate with a business’s existing systems. Once integrated, they monitor transaction data for patterns that may indicate money laundering or other illegal activity. Automated transaction monitoring solutions typically flag suspicious transactions for review and investigation by compliance teams.
Sophisticated transaction monitoring solutions like Alessa’s use various monitoring and analytics techniques to identify high-risk transactions. A rules-based analytics engine identifies transactions that match predetermined criteria. The rules may be designed for specific use cases, such as flagging money laundering activities for banks, but they can also be tailored and refined to meet the needs of each business.
Alessa’s automated transaction monitoring solution includes many other features to streamline transaction monitoring and AML compliance, such as:
- Risk scoring: This calculates the risk associated with each transaction. Risk scores leverage numerous risk factors, which are configurable to meet the organization’s risk policies.
- Case management tools: These automatically create cases, send alerts and assign investigation and remediation workloads to users and teams.
- Decision learning tools: These use previous case management decisions to inform future monitoring, alerts and decisions. For example, if your organization blocks transactions that meet a particular profile, Alessa can automatically apply the same decision when related alerts are raised in the future.
The Benefits of Automated Transaction Monitoring
Let’s look at a few ways automated transaction monitoring can help your business meet its AML compliance obligations.
Automated transaction monitoring:
- Reduces the cost of manual monitoring processes, allowing financial institutions to save money and resources
- Detects suspicious activity more quickly and accurately than manual methods, reducing the risk of financial crime
- Monitors a large number of transactions simultaneously, providing greater coverage and reducing the risk of fraud
- Detects patterns of suspicious activity that may not be visible to manual monitors, allowing for faster action to prevent potential losses and compliance failures
- Provides real-time alerts when suspicious activity is detected, allowing for timely intervention by compliance personnel
- Provides data that can be used for regulatory reporting requirements such as KYC/AML filing or CTRs (currency transaction reports)
- Eliminates human error associated with manual transaction monitoring processes, resulting in improved accuracy and fewer false positives or false negatives
- Allows financial institutions to scale up their AML/CTF programs without having to hire additional staff members or increase existing staff workloads beyond capacity levels