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What is transaction monitoring?

Jul 17, 2023 Red Flag Alert Updated On: August 17, 2023
What is transaction monitoring?

Transaction monitoring is a key part of anti-money laundering procedures to allow financial institutions to mitigate risk and remain compliant with regulations.

It includes an analysis of a customer’s historical information to provide you with risk levels and predicted future activity.

Transaction monitoring is a core part of anti-money laundering processes with it also being present in our compliance automation solution. It includes the assessment of historical/current customer information and transactions to provide a clear picture of customer activity to ensure individuals are not engaging in laundering money, human trafficking, terrorism financing and more. It can be done in various ways using different technologies to monitor different types of transactions such as cash, card, wire etc. It is useful for fraud detection and prevention, but can also be used for security purposes. By building a picture of transactions that a person is engaging in any suspicious patterns are able to be detected.

All businesses must meet the required legal requirements imposed by relevant authorities. The  monetary threshold at which monitoring needs to occur is set by different  industry regulators, with the aim to link these transactions to an individual, detect suspicious transactions of money and to log any Suspicious Activity Reports.

Transaction monitoring within anti-money laundering (AML) is vital to ensure companies and directors remain compliant and avoid any fines, disqualification or even custodial sentences; especially during a time that technology is allowing criminals to perform more sophisticated money laundering schemes.

Why should you enforce transaction monitoring?

AML transaction monitoring allows you to gain a clear understanding of your customer, including risk levels and predict any future activity. It is important you conduct all relevant checks to avoid your company being used to facilitate money laundering and other criminal activity.

Transaction monitoring helps you to:

1. Ensure you adhere to regulatory standards

It is vital that you are aware of your AML and counter-terrorist financing regulatory requirements, for filing SARs and other reporting obligations. In 2021, National Westminster Bank was fined £265 million fine for AML failures relating to just one client.

2. Spot any suspicious activity

Transaction monitoring allows companies to detect if a transaction they are being asked to perform is a risk.

3. Maintain a level of professionalism

By conducting the relevant checks, companies are able to avoid tarnishing their reputation due to being implicated in any illegal activities. This will also enforce higher levels of customer confidence and create an atmosphere of professionalism.

How do I know if I require transaction monitoring?

Whilst the various UK AML laws lay the general groundwork for companies AML requirements industry regulatory bodies also have requirements. If you are unsure of whether you company is legally required to perform transaction monitoring checking with your regulatory body is a good place to start.

It is up to each individual company to decide what AML procedures they must implement in addition to those that are stated as mandatory in regulations; this is done as part of the risk based approach and it is the responsibility of company directors to ensure their AML procedures are capable of identifying and stopping money laundering.

What to do if someone fails AML check/transaction monitoring?

Whenever any suspicious activity is highlighted this must be reported to the National Crime Agency. This can be done by submitting a suspicious activity report (SAR), which will then be sent to the relevant financial authority. Within this, it should include the reasons they were selected for scrutiny, the specific elements of the transactions which were considered suspicious and any other notes from the compliance team/senior management employees.

Once the activity has been detected, it usually must be reported within 30 days by submitting a SAR. This can be extended in some cases where more evidence is required, to 60 days. SAR’s can be submitted for customers, suspicious employees, or even if computer systems have been compromised in any way.

SARs are not a prosecutable piece of evidence and serve to alert authorities that an investigation into possible money laundering is required. This means that should the investigation end in prosecution the fact a SAR was submitted will not be mentioned and you will remain completely anonymous.

How do I implement transaction monitoring?

At Red Flag Alert, we offer different levels of AML checks to our clients. This is because we understand  that different organisations have different requirements that they must adhere to. Our system is simple yet effective and allows you to conduct checks digitally without requesting documentation from your clients, from start to finish in under 30 seconds. Red Flag Alert have an automation tool to seamlessly onboard clients.  You are also able to export our checks and save them to your internal systems. 

We also offer ongoing monitoring within our platform, which allows you to continue monitoring for any changes in PEPs, sanctions and adverse media. With this, you are able to mitigate risk effectively and be the first to know if there are any changes. To find out more information, get a demo of our automation tool or try our new ROI Calculator to see how much your business can save with Red Flag Alert's compliance solution.


Published by Red Flag Alert July 17, 2023

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