A Comprehensive Guide To Transaction Monitoring In 2023

Scammers are always looking for corporations to manipulate, and financial enterprises with loopholes provide them with productive grounds to commit crimes. eCommerce lost $41 billion to online transaction forgery globally in 2022, with expected growth to $48 billion by 2023. These worrisome statistics indicate why transaction monitoring is critical for financial companies and other industries in this digital era.

Contents hide

Understanding Transaction Monitoring in Detail

Who Needs Transaction Monitoring?

What Can Transaction Monitoring Detect?

How Do Regulated Companies Monitor Transactions?

How to Choose a Transaction Monitoring Provider?

Understanding Transaction Monitoring in Detail

Transaction monitoring identifies anomalous transactions both proactively and reactively, flagging the dubious ones for manual review. For businesses that transfer money on behalf of customers or businesses, transaction monitoring is a required step. Serious fines are imposed on those who break anti-money laundering (AML) rules.

Think about someone who manages a bank but doesn’t have a strategy for keeping track of transactions. It implies that questionable transactions might take place covertly, resulting in a substantial loss of money from a customer’s account. The client would lose faith in the bank, accusing it of being dishonest, and file a complaint with the police to seek punishment. As a result, the business would likely be in jeopardy, the owner might be held liable, and the bank would be penalized. So it is obvious why financial institutions are required to monitor suspicious transactions.

Who Needs Transaction Monitoring?

Every organization that handles money is required by law to implement the appropriate security measures to protect customers from fraud, hacking, and other financial crimes. ?

Money Assistance
Conventional Banks?
Funds Transfer Firms?
Financial Services
FinTechs?
Lending Institutions?
Cryptocurrencies?
Brokerages
Exchanges?
Legal Experts
Insurance Businesses?

What Can Transaction Monitoring Detect?

A strong transaction monitoring system can detect the following:

Money Laundering

once a person or organization has acquired money through illegal methods, hiding the source of the money. A crook employs the three phases of arrangement, layering, and integration to launder money. Before being utilized for additional expenditures (integration), money is first established in a corporation (placement) and covered up (layering) using accounting procedures.

Terrorist Financing

financing terrorists or terrorist organizations. A list of countries regarded as uncooperative in the global campaign against financing terrorism is included on the FATF blacklist.

Fraud

Because of new technologies and improvements, con artists have created fresh schemes for committing fraud. Identity theft, falsified insurance claims, and dump schemes are a few popular scam techniques.

Bribery and Corruption

Know Your Transaction can spot potential bribery by keeping an eye out for certain signs, such as out-of-the-ordinary cash payments and round-sum expenditure payments.

How Do Regulated Companies Monitor Transactions?

Regulated businesses must keep an eye on transactions, but they have a choice in how they do it. Companies commonly carry out transaction monitoring utilizing a combination of manual operations and automation, using different tech-led solutions, to provide the best results.

Here are clear, detailed instructions for carrying out comprehensive transaction monitoring:

Assign a risk value

Various clients provide variable extents of AML risk according to the existing and documented cases, such as industry and geography.

Create Risk-based Rules

According to the risk value, financial institutions should set separate rules for each category. These rules should be adaptable and dynamic.

Set up Alerts

When AML regulations are broken, a warning must be sent. This doesn’t necessarily mean that criminal activity has taken place; rather, it just means that a review is necessary.

Assign a KYT Compliance Team

The transaction might be put on hold while waiting for more compliance or risk staff evaluation after an alert has been activated.

Create a Suspicious Activity Report

If there is even the slightest hint that a financial crime has taken place, a SAR should be filed. The problem should be brought to the attention of the appropriate Financial Investigation Unit (FIU).

How to Choose a Transaction Monitoring Provider?

There are some dangers associated with implementing KYC transaction monitoring technologies. This includes picking a shady supplier or using a manual transaction monitoring system that can’t handle customer volume.

KYT compliance must: in accordance with the regulations for the UK banking sector.

Flag unusual activities and transactions for further examination
Promptly submit such cases for review
Take appropriate action based on the findings

If businesses don’t implement transaction monitoring, they risk receiving fines from the government and the spread of criminal behavior. Therefore, when choosing a supplier of transaction monitoring services, organizations should have a set of criteria that work for them.

Businesses can choose an appropriate transaction monitoring solution by asking the following questions of providers.

How does the solution enable firms to use a risk-based approach for customers and deals?
How quickly does this approach adopt new typologies?
What sort of money laundering does the system deal with?
How can the solution be tested before running on the system?

Since each list will be unique to a company, this is not an exhaustive list of all conceivable questions. However, it provides information on the characteristics a company should consider when picking a transaction monitoring supplier.