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17 November 2021, 12:10


An introduction to Transaction Monitoring- what are the challenges and benefits of Real-Time Transaction Monitoring

What is Transaction Monitoring

Transaction Monitoring is simply the continuous monitoring of customer transactions for suspicious activity. This includes monitoring transfers, deposits and withdrawals. The aim of transaction monitoring is to act as controls for anti-money laundering and counter finance terrorism. Real-time and ongoing transaction monitoring uses software to increase efficiency.

Why is Transactions monitoring important?

Transaction monitoring is an important first step for any financial institution’s AML and CTF procedures. The ability to spot a suspicious transaction could potentially prevent large sums of money from being laundered across the globe. 

Additionally, having transaction monitoring in place gives regulators and banking partners confidence. It shows that a financial institution takes AML and CTF regulations seriously and is doing all it can to prevent criminal activity. This creates trust between new and/or current partners. 


Consequences of an ineffective Transaction Monitoring System

Monitoring transactions is about understanding and mitigating risk. It goes beyond thresholds and hard-coded words and delves much deeper into the associated behavioural activity, both financial and non-financial. Effective transactions monitoring should not look at a single transaction in complete abstract, utilising as much data as possible to paint the fullest picture possible enables both the synthetic mind and the human one to better understand the level of risk and suspicion involved. 

Fines for Non-Compliance in AML:

Fines for non-compliance have arisen for the following four reasons in transaction monitoring. 

  1. Lack of resources 
  2. Not reporting suspicious activity 
  3. Insufficient Monitoring Systems 
  4. Ineffective risk-based frameworks 

Over 90% of alerts are ignored due to lack of resources


Key Challenges of Real-Time Transaction Monitoring

The IT architecture required for Real-Time Transaction Monitoring work effectively is becoming more complex. This complex AI and Machine Learning can be difficult to engineer. Read more about the Tech in RegTech here 

Money laundering is a global risk, and every nation state has a different respond to it. Regulations can vary across borders and so it can be a challenge to ensure the transaction monitoring system is aligned to what is needed.  

Real-Time is one thing but managing its output is quite another. Organisations have to be able to deal with what real-time checks produce and have the systems and operations in place to deal with it. 

Benefits of Real-Time Transaction Monitoring

Stop transactions before payments are processed.

  • Suspicious activity reporting becomes more effective when it is timely. Real-time transaction monitoring has an ongoing objective to respond quickly to reduce the risk of money laundering. In doing so, this allows for the relevant actors to intervene before the payment has been processed. 

Immediate Reporting 

  • In following with the previous point, the timely response to the unusual transaction allows for relevant actors to alert the officials. This urgent flagging of potential risk allows for the suspicious activity report to be reported immediately. This in turn stops potential crime, which benefits the wider community. 

Reduce operational strain

  • A traditional way of transaction monitoring is to assess alerts in bulk. Real-time transaction monitoring involves evaluates the report immediately. This reduces the strain on the operations when assessing in bulk. Human intervention as analysists should assist the transaction monitoring software harmoniously.  

 Boost security 

  • Real-time transaction monitoring transmits both data and alerts as single items. The lack of bulk files allows for less risk of interception when using the software.  

Gain end-to-end visibility 

  • Real-time transaction monitoring does not look at each transaction in isolation. The software allows for the generation of the wider picture to make sense of the transactions. This is done through financial risk workflows such as PEP and sanction screening. This creates greater accuracy to the ongoing monitoring.  

What is the promise of AI?

To combat the elevated levels of false positives seen through traditional AML Transaction Monitoring controls, technology can improve the efficiency for banks and other financial institutions. This type of RegTech applications, such as DX Compliance Solutions, provides a full solution in transaction monitoring. This significantly reduces operation costs with no detriment to the effectiveness through different combined technologies.   

Noise Process Learning is a branch of AI that enables computers to understand, interpret and manipulate human language in the same way that a person can. This is used in Transaction Monitoring technology, and it can have great benefit for AML operations. NPL can filter out cases requiring complex investigations and increase conversion rate of alerts into suspicious activity reports.  

These combined technologies also allow for SAR submissions to be automated in such a way that it leads to more accurate and efficient working. Application Programme Integration is used as it allows for different systems to communicate through AI and so this is beneficial within ongoing AML monitoring as well.  

How do regulators react to the use of AI?

Regulators around the world learn the benefits and challenges of AI and ML. Regulators need to understand what the Role of AI in Transactions Monitoring is! 

As Regulators move ad different speed. A global picture shows that Explainable AI is on the rise. The reason behind this trend is to put the Control of Frontier Technologies in the hands of humans and not the machines. Compliance Professionals and regulators become increasingly educated about the potential and the challenges of AI and other frontier tech. 

AI will never take over as this is not the promise of AI. 

How to find and evaluate a Transaction Monitoring Solution

Do your homework and invest upfront time and effort to evaluate which transaction Monitoring Solution you need and want. Our Buyers Guide that you can download in our Whitepaper sections can help you here. 

If you want to build your own system, good for you. However, keep in mind, there are people around that can support you in a much smarter & faster way.  If you have already a self-built solution make sure that your current solution is up to date and there is continuous improvement. Otherwise, you should evaluate state of the art Transactions Monitoring Solutions to ensure you are not caught out. 

The benefits of a Specialized Vendor in AML Transactions Monitoring who provide you with AML Software, both in terms of screening and on-going monitoring for high-risk and suspicious activity could prove priceless! 

Transaction Monitoring through DX Compliance

DX Compliance is software-as-a-service (SaaS) and provides a full Real-Time Transaction Monitoring Solution through different combined technologies. DX aims to help achieve regulatory AML compliance by empowering compliance people in AML. We use technology to help complete their workload with greater speed, reduced costs and allowing the people to focus on the tasks at hand and let us take care of the technological solution. For more information, reach out to us here. 

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