Transaction Monitoring Workflow –
Meaning Of TM –
Anti-Money Laundering Transaction Monitoring holds an important place in AML compliance.
Through the analysis of financial transactions, AML Transaction Monitoring is utilized to detect and
stop money laundering operations. Large amounts of financial transaction data, including bank
transfers, credit card payments, and other financial activities, are scanned and analyzed using the
software. The technology is meant to detect patterns and irregularities that might be signs of money
laundering or other financial crimes like fraud or funding terrorism.
To better understand AML transaction monitoring, it is essential to understand the process involved.
This process includes eight key steps:
1. Identification of Suspicious Behavior
2. Setting Alerts
3. Customer Identification
4. Transaction Analysis
5. Investigation and Escalations
6. Reporting
7. Review
8. Audit
Identification of Suspicious Behavior
Identification of suspicious behavior involves setting parameters for identifying potentially illicit
activities. This can include setting rules based on transaction amounts, frequency, or geographic
location. The system should also be able to adapt to new and emerging risks, such as changes in
regulatory requirements or sanctions.
Setting Alerts
Setting alerts is the next step in the AML transaction monitoring process. This involves the creation of
automated alerts based on predefined criteria. Alerts can be customized to fit the needs of each
financial institution and can include criteria such as unusual transaction patterns, high-risk customers,
or known money laundering typologies.
Customer Identification
The AML regulations and the guidelines issued by the Supervisory Authorities provide stringent
customer identification procedures that DNFBPs, VASPs and Financial Institutions must follow to
identify suspicious transactions. This customer identification procedure is also generally referred to as
Customer Due Diligence.
Steps in Customer Identification
The CDD measures implemented involve the following steps:
• Verify Customer Identity: Identifying the customer and customer identity using independent
reliable data.
• Identify UBOs: Determine the Ultimate Beneficial Owners, verify their identity, which
provides a satisfactory answer to the DNFBPs, FIs and VASPs about true ownership. It gives
a clear idea about the control exercised on the customer.
• Purpose of Business: Obtaining information about the customer’s business activities and
understanding the objective of the business relationship.
• Continuous monitoring: Continuous monitoring and due diligence is done on the business
association and thorough examination of transactions is carried out during the business
relationship.
All the processes mentioned above apply to all the customers.
Transaction Analysis
In the prevention of money laundering and terrorism financing ML/TF, it is essential to recognize
all unusual or suspicious transactions, i.e., those transactions or operations that are inconsistent
with a customer's regular activities.
Here are a few examples of unusual transactions that may serve as an indication of possible money
laundering:
• Unexpected movements in transactions and account management
• Transactions showing significant fluctuation in terms of the volume or frequency of the
customer's business
• Small deposits and transfers that are immediately allocated to accounts in other countries or
regions
• Transactions that show a sudden and unjustified change as per accepted standards in
comparison with the customer's history
Transactions whose degree of complexity and risk is inconsistent with the customer's technical
qualification
Investigation and Escalations
Investigation and escalation is the next step in the process. When potentially suspicious activity is
detected, it must be investigated and escalated to the appropriate parties. This may include the
financial institution’s compliance team or law enforcement authorities.
Reporting
Reporting is the penultimate step in the AML transaction monitoring process. As the law requires,
financial institutions must report suspicious activity to the relevant regulatory authorities. Failure to
do so can result in severe financial penalties and reputational damage.
Review
Finally, the review step involves the ongoing evaluation of the effectiveness of the transaction
monitoring system. This includes reviewing the parameters and alerts to ensure they are still relevant
and practical and reviewing any false positives or negatives to identify areas for improvement.
Audits
Financial institutions must establish a clear audit trail for monitoring and investigations. This helps
demonstrate compliance with regulatory requirements and aids in identifying any potential gaps in the
transaction monitoring process.
Furthermore, if any discrepancies or suspicious activity is detected, it is essential to notify regulators
or increase the vigilance of specific accounts. This is crucial in preventing money laundering and
other financial crimes from occurring.
