AML Transaction Monitoring Explained

Aug 20, 2023
Transaction monitoring

Have you ever experienced the convenience of making financial transactions, such as paying bills or investing your money, in just a few clicks? These transactions may seem like a routine part of our daily. However, they can also be vulnerable to financial crime, including money laundering and terrorist financing. But do not worry, there is a way to stay protected – AML transaction monitoring.

In this blog post we will delve into the world of AML transaction monitoring. We will discuss what it is and how the process works. We will also discuss the role of a transaction monitoring system. You’ll also find out why it’s important to protect yourself from financial crime. So, buckle up and get ready to learn more about this critical topic!

What is AML transaction monitoring?

The AML transaction monitoring process is a critical part of a financial institution’s AML programme. It helps to detect and prevent money laundering, terrorist financing and other financial crimes. AML transaction monitoring is the process of tracking and analyzing financial transactions to detect potential instances of financial crime. The aim is to prevent illegal activities such as money laundering, terrorist financing and other criminal activities.

Financial institutions, such as banks, are required by law to conduct AML transaction monitoring. This is because they need to comply with regulations and prevent financial crime. This is typically carried out by financial institutions and other organizations subject to anti-money laundering regulations.

It also worth be noted that the Financial Action Task Force (FATF) recommends financial institutions tailor the scope and depth of their transaction monitoring to their institutional risk assessment and individual customer risk profiles. The FATF also recommends that ongoing transaction monitoring and customer due diligence should occur on an ongoing basis or be triggered by specific transactions.

Steps of the process

The AML transaction monitoring process involves the collection and analysis of financial transaction data.

Steps of transaction monitoring
Steps of transaction monitoring

The process typically includes the following steps:

  1. Identification of high-risk customers. Financial institutions identify customers who pose a higher risk of money laundering activities based on their occupation, country of origin, source of funds and other factors.
  2. Collection of transaction data. Institutions collect transaction data, such as the amount of the transaction, the account numbers of the sender and receiver, and the date and time of the transaction.
  3. Filtering transactions. Financial institutions utilize automated software to filter transactions based on pre-defined rules, such as transactions exceeding a certain threshold or transactions involving high-risk countries.
  4. Analysis of alerts. Analysts review the alerts generated by the filtering process to determine whether the transaction is suspicious or requires further investigation.
  5. Investigate suspicious transactions. Upon identifying a suspicious transaction, analysts conduct an investigation to gather additional information, including the purpose of the transaction and the identities of the parties involved.
  6. Reporting. Upon confirming the transaction as suspicious, financial institutions file a Suspicious Activity Report (SAR/STR) with the appropriate regulatory authority.
  7. Record Keeping. To demonstrate compliance with AML regulations, financial institutions maintain records of all transactions and investigations.

By following these steps, financial and other institutions can build an effective AML transaction monitoring compliance process. And build it in away that helps to identify and prevent money laundering and other financial crime, while meeting regulatory requirements.

The role of a transaction monitoring system

An AML transaction monitoring system is an automated software system that uses data analysis to detect potential instances of financial crime. The system aims to monitor large volumes of transaction data in real-time or retrospectively, with the goal of identifying potential instances of money laundering, terrorist financing, and other criminal activity.

This may include transactions involving large amounts of cash, high-risk countries or individuals. Or those that are unusual in nature or inconsistent with a customer’s known financial behaviour.

Trained analysts can review suspicious activity identified by the system, which uses complex algorithms for detection. If the analyst determines the transaction is suspicious, they report it to the authorities, such as Financial Intelligence Units (FIUs). It should be filed as a Suspicious Transaction Report (STR) to alert law enforcement authorities to suspected cases of money laundering or terrorist financing.

Real time transaction monitoring
Real-time transaction monitoring view in the AMLYZE platform

Why is AML transaction monitoring important to you?

Effective transaction monitoring requires few ingredients. Firstly, it should consist of the right processes. Secondly, appropriate technological engine and an understanding of the role of AML transaction monitoring in the AML system. And thirdly, human regulatory expertise to successfully separate good transactions from suspicious ones as criminals continue to evolve their money laundering methods.

AML transaction monitoring is important because it helps protect you from financial crime, money laundering and terrorist financing. The effects of financial crime can be devastating, including identity theft, fraud, and loss of savings. Financial transaction monitoring helps to detect and prevent illegal activity that could harm you, your business, or your customers.

It is also a critical tool in protecting individuals and society from financial loss. AML transaction monitoring process enhances security for financial institutions. It involves using a transaction monitoring system. This also helps meet business compliance requirements. But it’s important to understand how AML transaction monitoring works. And at the same time to appreciate its role in protecting our financial transactions and our overall financial well-being.

Risk of losing your licence

It is worth to keep in mind that some jurisdictions may require real-time transaction monitoring. Because in some countries instant payments that enable transferring money within seconds at any time of day is a must.

Regulatory authorities can fine or revoke licenses of institutions that fail to implement AML programs, leading to loss of business.

Find out more here about the AMLYZE transaction monitoring module. There you will also find about its ability to reduce false positives by 62% and its real-time transaction monitoring possibilities.

About the author

AMLYZE is a fully automated service created for the financial sector and businesses that are obliged to comply with AML/CFT regulations.


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