Module 3: AML transaction monitoring process – STEPS to create a transaction monitoring system

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One of the more popular AML seminars is the “Transaction Monitoring – AML Transaction monitoring rules”.

Module 3: AML transaction monitoring process – STEPS to create a transaction monitoring system

STEP 1: Risk Assessment – Understand client risk factors (see previous post)

STEP 2: Establish internal policies.

After taking the risk assessment, the next step is to create the AML policies and procedures that your institution will abide by. You should create an appropriate mechanism for the oversight, review, and approval of monitoring processes and parameters. The policies need to be as detailed as possible to reduce the chances of anything slipping through the cracks. These policies may include:

• Defining responsibilities for the company’s staff members
  
• Procedures to cover onboarding customers and activity investigation
  
• Measuring the effectiveness and relevance of monitoring arrangements
  
• Monitoring controls that report back to the local regulator
  
• Ongoing review processes
  
• Supporting system changes to address evolving money laundering risks
  
• New products should be in line with the goal of the business

STEP 3: Determine elements of suspicious behaviors

• Define what should be flagged for review
  
• Each company should establish red flags that signify suspicious behavior
  
• These red flags depend on the size and nature of each company
  
• Transaction monitoring solutions, therefore, should have the technical ability to identify such flags and timely notify staff members
  
• Components of suspicious activity that you need to identify:
  
  • Large sums of money being transferred from one bank account to another
    
  • If the account holder suddenly makes a transaction that they wouldn’t usually make, this could be deemed suspicious because it doesn’t follow the transaction behavior the customer is known for
    
  • If a large or unusual amount of deposits is made into another account, this could indicate suspicious behavior
    
  • Avoiding the requirements of record-keeping
    
  • Several transaction bursts in a short time
    
  • Transactions that the account isn’t used for

Your transaction monitoring system should be in tune with alerting when these behaviors have been identified.

STEP 4: Define a suitable transaction monitoring solution

After establishing internal policies, companies will be able to define which transaction monitoring solution is more suitable.

• Companies change over time and so should their transaction monitoring tools.
  
• If a company feels comfortable using a manual approach at first, it may switch to an automated solution after experiencing growth.
  
• There are certain risks associated with the implementation of transaction monitoring solutions.
  
• These risks include choosing an insufficient KYT provider or using a manual transaction monitoring system that clearly can’t handle the customer flow.

Based on the Guidance for the UK financial sector, monitoring systems must:

1. Flag unusual transactions and/or activities for further examination
2. Promptly submit such cases for review by the right person(s)
3. Take appropriate action on the findings of any further examination

If failing to perform transaction monitoring, companies risk being penalized by authorities, in addition to proliferating illegal activity. Therefore, when choosing a KYT provider, companies should have a set of requirements that would fit them.

To choose a suitable KYT solution, businesses may ask KYT providers the following questions:

• How does the solution enable companies to implement a risk-based approach to customers and transactions?
  
• What are the money laundering/terrorist financing typologies that the system addresses?
  
• How quickly can new typologies be implemented in the system? How can the KYT solution be tested prior to activation in the system?

Module 1: What is AML transaction monitoring?

Module 2: Transaction Monitoring – AML/CFT controls 

Attend our Pre-Recorded Online Course “Transaction Monitoring – AML Transaction monitoring rules”, learn all eleven STEPs of how to build your own transaction monitoring system and gain 5CPDs.