No matter if your company exists in the United States or European Union, there’s a good chance that you must meet AML rules and regulations. One of the primary components of AML regulations is transaction monitoring. Below, we’ve provided a breakdown of what AML transaction monitoring and thing to consider when building a compliance system.
A Brief Overview Of Transaction Monitoring
AML transaction monitoring allows financial institutions to screen and review customer transactions in real time. Typically, AML transaction monitoring is extensive security software. Transaction monitoring is one part of a comprehensive program designed to help ensure compliance with AML regulations.
AML transaction monitoring software reviews individual transactions for red flags, such as those that involve the transfer of more than $10,000 or involve the transfer of money across borders. Furthermore, the software can be tailored to cross-reference individual transactions with a customer’s account profile and historical information gathered during the KYC verification stage. Doing so provides financial institutions with a complete snapshot of a customer, including:
• A customer’s riskiness
• Anticipated activity in the future
• Alerts for suspicious activity
Companies can set the parameters that they wish to monitor when determining their AML transaction monitoring systems. Most financial institutions want to review all relevant transactions, including:
• Withdrawals
• Cash deposits
• ACH activity
• Wire transfers
Why Is AML Transaction Monitoring Important?
Financial institutions must monitor for anti-money laundering activities as set forth by the ruling government in which they operate. For instance, financial institutions in the United States must comply with rules set forth under the Bank Secrecy Act, while companies in the European Union must follow the regulations outlined in the Fifth Anti-Money Laundering Directive.
Although these regulations demonstrate significant differences, the common theme is that financial institutions must report suspicious activity in an accurate and timely fashion. AML transaction monitoring systems make this process. It would take entirely too much time for individuals to sit in front of a computer screen and flag potentially fraudulent transactions. The time that it would take to do so would slow down financial systems significantly.
AML transaction monitoring software streamlines the process considerably. Algorithms are set to ensure that certain factors are not missed in real time. These systems can also help ensure that financial institutions remain compliant with regulations. Missing a fraudulent transaction could cost a financial institution thousands of dollars in penalties. Once software flags a transaction, staff members of the financial institution can then follow up further and file appropriate reports.
Statistics from the IRS also suggest that stringent regulations have cut down on the likelihood of suspicious activity. For example, the number of Bank Secrecy Act Investigations in the United States decreased from 809 to 613, and then from 613 to 504, in the 2014 – 2016 fiscal years.
Furthermore, the recommended prosecutions decreased from 677 to 519, and then from 519 to 411. Ensuring that fraudulent transactions are flagged could reduce the likelihood of them being attempted.
Things To Consider Before Building A Monitoring System
Investing in an AML transaction monitoring system could do wonders for your business. It would increase the likelihood of compliance, primarily if you conduct international business. Systems can be designed so that they meet the regulations set forth by multiple countries. For instance, we develop our programs to meet the provisions of 12 countries, including
• United States
• Mexico
• Canada
• Spain
• Israel
• Britain
• Italy
An AML transaction monitoring system could also be a worthwhile investment because it will allow you to dedicate resources elsewhere. The employees who have reviewed transactions in the past could focus their efforts elsewhere, allowing you to make better use of company time and money.
One of the first things businesses will need to consider is whether they wish to buy a system or build one in-house. Creating a system in-house could be cheaper in the short-term, but it could add up in the long run. We find that in-house systems have high operational costs. They also tend to not be as effective as professionally-developed systems, resulting in hefty fines for financial institutions.
Similarly, an in-house system increases the likelihood of bugs and system errors. If a bug impacts the system, the system will likely miss fraudulent transactions. You may also have to take the system offline to repair it, creating a backlog in your review system. In a world where transaction monitoring occurs in real time, neither of these situations is ideal.
Another issue seen commonly with in-house systems is false positives. Whenever the system flags a transaction, a member of your team will need to identify why the system flagged the deal and then determine the best way to follow up. If the system sends false positives through to staff members, they’ll waste time on a wild goose chase. Professionally-developed monitoring systems have carefully-designed algorithms to help ensure their success.
If you’re interested in learning more about AML transaction monitoring systems, be sure to contact us today. We can review the industry in which you work and recommend the ideal monitoring system for your institution.
