The Importance of AML Transaction Monitoring in Financial Institutions

We all know that financial institutions have unlocked new possibilities, ranging from cross-border trades to online transactions. The flip side to these possibilities are the new challenges that have arrived for financial institutions. Rapid advancements have also led to a rise in money laundering activities, the biggest challenge confronting financial institutions in recent times. 

Did you know that around 2 to 5% of the world’s GDP is laundered annually? Also, 90% of money laundering activities are not ever traced. Financial institutions like retail or commercial banks must implement strict anti-money laundering measures to avoid risks. Transaction Monitoring (TM) solutions are a must for every financial institution to mitigate associated risks.

Read on to understand the importance of AML Transaction Monitoring in financial institutions.

Understanding Transaction Monitoring for Money Laundering

Transaction monitoring is a process within the anti-money laundering strategy to monitor the money flow. Customer transactions are monitored by the concerned financial institution to identify any suspicious activity. Online transfers, cash withdrawals, deposits, and other financial activities of consumers are monitored with new-age and sophisticated tools. Since financial institutions have access to large amounts of transactional data, it is not feasible to perform manual analysis. For the same rationale, financial institutions rely on digital tools and platforms for transaction monitoring.

Tools that can recognize patterns and detect financial anomalies are used for anti-money laundering monitoring. AI-led tools are used for automated pattern recognition and anomaly detection properties. These tools or software systems monitor internal and external transactions at all times. The tools will raise alerts on detecting anomalies that lead to money laundering activities. Financial institutions cannot ignore transaction monitoring at any cost. Anti-money laundering laws in different jurisdictions require financial institutions to install effective transaction monitoring systems.

Professionals in the banking sector cannot think of monitoring transactions and detecting money laundering instances manually. Do you know that around 69% of money launderers have a small or no prior criminal record? Money launderers might be common individuals relying on banking services offered by a financial institution. New-age AML transaction monitoring solutions are the only choice for financial institutions to eliminate the underlying threats. These digital solutions identify an anomaly from large data sets in real-time.

Understanding the Importance of AML Transaction Monitoring

Anyone can make your financial institution a centre for money laundering activities. If you are late to act, the money launderer might never get caught. Also, the financial institution might lose its reputation when money laundering news goes public. It is better to safeguard your organization from money launderers via rigorous transaction monitoring. 

Here’s how transaction monitoring for anti-money laundering is essential for all financial institutions:

Identify Red Flags in Real-time

Transactions are monitored using some fixed rules. Any financial activity that does not fit the rules might be suspicious. AI-led transaction monitoring systems can use rule-based data sets to determine any suspicious activity. Without identifying red flags, financial institutions cannot trace money laundering activities. 

Let us understand the concept of identifying red flags with an example. Assume that a bank has many corporate entities as clients. With the help of a transaction monitoring system, the bank learns about some abnormally high profits made by companies. Analysts and anti-money laundering experts will start digging into the company’s financial records to uncover any money laundering activity. 

Here are some red flags identified by transaction monitoring systems:

• Payments more than the pre-set limit within the AML system

• Frequent transactions of high value

• Involvement of PEPs (Political Exposed Persons) in transactions

• Inconsistent transactions

• Screening

Besides the above-mentioned red flags, many other suspicious activities are traced by transaction monitoring systems. Financial institutions will know when to start their anti-money laundering procedure with a TM system.

Real-time Detection of Anomalies

In the financial sector, detecting money laundering attempts in real time is essential. But what’s the point of identifying a money laundering case after the culprit has fled? AML transaction monitoring is critical for financial institutions wanting to become proactive in their anti-money laundering operations. With high-end TM systems, financial institutions can analyze real-time transactional data and identify abnormalities. Once the financial institution gets a hint of a money laundering attempt, it can alert the authorities. Concerned authorities will have ample time to catch the culprit, and the organization’s reputation will be saved.

Staying Compliant with AML Laws

A financial institution might not have the choice to compromise with anti-money laundering operations. In most jurisdictions, financial institutions must monitor customer transactions and alert the authorities regarding suspicious activities. Many countries have made it compulsory for financial institutions to use electronic surveillance systems for better results. By failing to comply with anti-money laundering laws, a financial institution might be subjected to penalties.

As you can see, AML transaction monitoring is compulsory for many reasons. Financial institutions can seek third-party support to enhance their anti-money laundering operations. Install high-end transaction monitoring systems right away!

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