Anti Money Laundering (AML) Monitoring Scenarios

September 30, 2021

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Transaction monitoring systems give financial institutions the ability to watch over their clients' or customers’ transaction behavior. By providing current scenarios and/or transaction monitoring rules, the monitoring system can alert institutions of suspicious activity that may be linked to money laundering or other financial crimes. Investigators then determine if these alerts are actually linked to unusual activity and if so, they will fill out suspicious activity reports (SARs) or another type of report for financial authorities.

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Several financial institutions don’t re-assess the effectiveness of the alerts and whether or not there is a need to adjust the current threshold or even create new monitoring scenarios. This absence of tuning happens if:  

  • When going back into the transaction monitoring system, there is not a feedback loop from the alert investigations phase. This means that the information collected during the alert investigation stage can’t be leveraged by the automated transaction monitoring system
  • There’s not a process in place, that is repeatable, that requires the financial institution to continuously re-evaluate thresholds and scenarios, or a process that analyzes to determine if changes are needed.

The lack of intermittent scenario tuning frequently results in several false positives, which results in a delayed alert investigation. This ultimately results in missed reporting deadlines.

Challenges of Utilizing AML Monitoring Scenarios

Financial institutions tend to face several challenges regarding consecutive scenario tuning.

Information availability

The availability of alert investigation information isn’t obtained for use in future scenario tuning phases and even if the alert investigation information is obtained, it wouldn’t be in a data structure that works for data analyses or management information reporting.

Tuning methodology

In situations where the use for scenario tuning is identified, it is mainly concentrated on the problematic scenario/s at hand rather than in-scope scenarios, resulting in inconsistent performance of the scenario tuning process and ultimately won’t be maintained by consistent documentary evidence in case of regulatory scrutiny.

Measuring Tuning Effectiveness or Success

Only confirmed positive cases result in SARs being sent to financial authorities, meaning that it’s harder to tune the transaction monitoring system on solely the alert-to-SAR ratio in addition to measuring the overall effectiveness of the transaction monitoring system. Sufficient measurements of success include red flag coverage and as few criticisms of the transaction monitoring symptom by regulators as possible.

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Opportunities of a Systematic AML Monitoring Scenario Tuning Process

When connected to an anti-money laundering (AML) system, a systematic scenario tuning process gives a financial institution to get over the challenges listed above, and will ultimately help the system in the following ways:

  • Reducing false positives – By administering a systematic scenario tuning cycle, the institution will be capable of determining more specific thresholds, since these values are coming from previous information collected at the investigation level in addition to conducting advanced data analyses.
  • Better alert scoring –Alert scoring is done to further efficient alert assignment to investigators. A fine-tuned scenario process will be more likely to produce real positives, therefore, bettering the effectiveness of alert scoring.  
  • Identifying Redundant Scenarios – The financial institution can identify redundant scenarios (meaning they are ineffective) by ensuring a constant information feedback loop. This analysis then gives real data for getting rid of nonproductive scenarios from the production environment.
  • Measurement of Success – By having an official tuning process that considers risk management, institutions can then present success factors other than heightened cases and filed SARs. These factors include clearly explaining which known money laundering red flags are moderated by each implemented scenario. This makes it easier to identify activity that may be referred to by law enforcement as well as to present an effective tuning method that works well for regulators.

If you are interested in learning about how Unit 21 can help your company with AML monitoring scenarios schedule a meeting today.

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