Effective transaction monitoring is essential for any financial institution committed to combating financial crime, and transaction monitoring rules, sometimes reffered to as Anti-Money Laundering, or AML, rules and their configuration, are at the heart of this process.
Manually building and configuring effective AML rules can be a time-consuming and resource-intensive task. Financial institutions need a solution that streamlines this process while ensuring they remain compliant with ever-changing regulations.
Transaction monitoring rules are the core components of any effective transaction monitoring system. They define the specific parameters for identifying suspicious activity.
These rules specify the conditions under which a transaction or series of transactions should be flagged for further review. The rules can be constructed based on various parameters such as transaction amount, frequency, type, geographical location and more.
To enhance detection, additional filters can be applied. Such as payment type, account type, operation category, and customer type, segment or risk level. Moreover, specific parameters and exceptions, like whitelisted customers or counterparties, can be incorporated to enhance rule precision.
For example, threshold-based rules trigger alerts when a transaction exceeds a specified amount. For example, any single transaction over €10,000 could be flagged for review.
Pattern-based rules, on the other hand, focus on identifying unusual sequences of transactions. For example, multiple transactions just below the threshold within a short period of time (a technique known as structuring) may be flagged.
At the same time, behavioral rules compare current transactions with a customer’s historical activity. While geographical rules target transactions linked to high-risk jurisdictions or regions known for money laundering or terrorist financing activities. And frequency rules monitor transaction volumes over specific timeframes.
Most popular types of transaction monitoring rules:
- Threshold-based
- Pattern-based
- Behavioral
- Geographical
- Frequency
Read here our blog post dedicated to transaction monitoring rules.
AML rules configurator as a solution
AMLYZE allows users to create highly customized transaction monitoring rules through a flexible framework of parameters and filters.
Each AML rule is accompanied by a clear definition of its parameters, allowing users to easily understand and customize its values. These parameters cover various aspects of transactions, including amounts, frequencies, patterns, customer attributes and geographic locations. By combining and modifying these parameters, users can construct sophisticated rule logic to detect specific AML/CFT/fraud typologies.
To further refine rule behavior, users can use additional parameters to define exceptions or whitelists. In addition, multiple rule variants can be created by adjusting thresholds, scores and other parameters based on criteria such as customer risk level or geography.
AMLYZE also provides rule testing functionality, allowing users to validate rule logic against historical transaction data. By simulating rule execution and analyzing the results, users can fine-tune rule parameters and optimize performance without impacting the production environment.
Basic advantages
AMLYZE’s extensive library of nearly 300 pre-defined rules provides a strong foundation for efficient and compliant transaction monitoring. Created by industry insiders and informed by regulatory best practices, these rules offer several benefits:
- Rapid implementation
Pre-built rules accelerate the setup process, enabling organizations to quickly establish a baseline level of monitoring.
- Reduced training requirements
The easy-to-use interface and intuitive design minimize the need for extensive training, allowing compliance teams to focus on rule configuration and monitoring.
- Enhanced compliance
Developed with regulatory requirements in mind, pre-defined AML rules help organizations stay ahead of compliance obligations.
- Consistent application
Standardized rule templates ensure consistent application across the organization, reducing the risk of inconsistencies and errors.
- Adaptability
By adjusting filters and parameters within predefined rules, users can create tailored detection scenarios for specific typologies, ensuring that the monitoring system remains responsive to evolving threats and organizational needs.
Watch this short video to discover all the key features of the AML Rule Configurator:
Best practices of AML rules configuration
Of course, the configuration of transaction monitoring rules should be done responsibly and carefully. Because it directly affects your AML/CFT process.
Any newly configured rules should be regularly reviewed and updated to reflect changing regulatory requirements, emerging threats, and evolving business practices.
When configuring AML rules, tailor them to the specific risks associated with different customer segments, products, and geographies.
Testing and validating the rules to ensure they are effective in detecting suspicious activity without generating excessive false positives should also be a must.
You should also regularly train compliance staff on the latest trends in financial crime and the effective use of the transaction monitoring rules you use.
Best practices for configuring transaction monitoring rules:
- Regular updates
- Risk-based approach
- Testing and validation
- Integration with other systems
- Training and awareness
Importance of the audit log
If you change the parameters of a particular transaction monitoring rule, it is worth having a history of all the changes and the reasons for them.
This is because the regulator’s representatives may ask when, why and how you changed the rules during their inspection. Justification is critical for you to avoid a warning, penalty, or other regulatory action.
That is why we have created a rule audit log where you can see all the changes you’ve made and the reasons for them.
For example, if you have updated filters and risk scores to capture new suspicious activity, you will find this justification in the rule audit log.
Summary
At AMLYZE, we understand that effective transaction monitoring requires both flexibility and precision. Our solution leverages deep regulatory expertise and advanced technology to deliver a powerful and adaptable platform.
Built on a foundation of pre-configured AML rules, AMLYZE enables institutions to quickly implement effective monitoring measures, while retaining the ability to tailor rules to specific risk profiles and compliance requirements.
