Financial organizations always have a risk of illegal economic activities such as money laundering, terrorist financing, and corruption. Therefore, international organizations (e.g., FATF) and government authorities have made AML/CFT laws to prevent such actions. Every financial organization has to follow these rules. Otherwise, they have to pay the penalty or fines.
Businesses need automation to carry out high-risk functions to detect suspicious activities. Transaction monitoring systems provide an anti-money laundering system called AML Transaction Monitoring for businesses to fight against financial crimes. The money lost due to transaction fraud is expected to exceed $48 billion in 2023. A powerful transaction monitoring tool is needed to prevent financial fraud and ensure compliance. This blog discusses the AML transaction monitoring system, its challenges, how it works, and how industries can benefit from the AML transaction monitoring system.
AML Transaction Monitoring System
Financial organizations use the Anti-Money Laundering (AML) transaction monitoring system to prevent any financial crime related to money laundering by tracking any suspicious activity during the transaction monitoring. All financial organizations require this AML transaction monitoring system worldwide to comply with AML regulations. Financial organizations use this monitoring system to control the track timings of transactions automatically and instantly. This system responds to anti-money laundering (AML), countering finance terrorism (CFT), and know your customer (KYC) requirements of the company. It generates an alarm whenever they detect and report suspicious activity to KYC regulators called Suspicious Activity Report (SAR).
AML Transaction Monitoring Methods
There are two types of AML transaction monitoring methods, which are as follows:
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Manual Method
In this method, the compliance officers review the transactions and decide whether they are suspicious.
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Automated Method
This method uses software to identify and review transactions that may be suspicious by using artificial intelligence.
How Does an AML Transaction Monitoring Software Work?
AML transaction monitoring software is specially designed to stop money laundering by analyzing financial transitions, i.e., credit card payments and bank transfers. The software has guidelines for identifying transactions, including high cash flow or multiple transactions. This framework compares the customer’s data profile according to the rules administered by Government. This system visualizes the data and highlights and detects any suspicious activity that meets the requirement of AML laws.
Who needs AML Transaction Monitoring Software?
All financial organizations are subjected to the AML Monitoring Transaction system includes
- Banks
- Insurance Companies
- Broker/ Dealers
- Investment Companies
- Credit card providers
- Cryptocurrency Exchanges
- Online gaming Facilitators
Challenges Faced by AML Transaction Monitoring System
There are certain challenges that organizations face during transaction monitoring which are as follows:
The Volume of Transactions:
Most financial organizations need help due to the large volume of transactions daily. To deal with this issue, AML transaction monitoring provides a flexible solution for these organizations using flexible automation.
False Positives during Transactions
Some transactions are falsely labeled as wrong, called false positives, when monitoring the transaction. False positives are very common when it comes to transaction monitoring, and it requires follow-up, which drains the resources and affects the customer experience.
Regulatory Variability
Despite implementing aml laws to standardize the AML transaction monitoring system, variations still exist that need help in institutions’ AML efforts in various countries.
Benefits of AML Transaction Monitoring System
Aml transaction monitoring system has many advantages, which are as follows:
- This system allows scans for suspicious activity and creates an alert.
- This system enables the monitoring of money transfers.
- This system makes investigating fraudulent activity easier through comprehensive analysis.
- This system keeps the previous data in case of any rule change.
AML Transaction Monitoring Red Flags
Below is a list of some red flags or indicators that need to be considered during transactions.
Client behavior:
- The client changed advisers several times or chose an advisor who was geographically distant from the transaction and a client who requested shortcuts or a speedy process.
Source of finance
- If the funding comes from a private party without a connection to the client.
- The client’s socioeconomic status doesn’t align with the amount of money someone provided.
- A large amount of money is supplied in cash
Scope of business
- The company’s structure is too complex.
- Countries do the transaction with a high risk of money laundering.
- Use false or suspicious documents are being used to support the transaction.
Conclusion
Every financial organization requires the AML transaction monitoring system to monitor the transaction process to detect any suspicious activity during transactions, i.e., cash deposits, money withdrawals, money orders, traveler’s checks, currency transactions, cryptocurrency transfers, etc. To comply with legal regulations, transactions of potential customers are going through an AML Transaction monitoring system that works instantly in real-time and alerts the system when a transaction has crossed a certain threshold.
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AML transaction monitoring system helps businesses detect and act against potential money laundering, thereby protecting their reputation. It helps fight financial crime effectively and demonstrates their adherence to ethical standards and regulatory compliance, thereby avoiding penalties for non-compliance.
