January 10, 2022
Effective transaction monitoring software can protect the organization from being targeted by criminals and help maintain compliance. Here's how to choose the best technology for your business.
Global crime networks are continuously devising sophisticated ways to launder illegally earned money. The United Nations Office on Drugs and Crime estimates that the value of global money-laundering transactions is $800 billion to $2 trillion annually, or 2% to 5% of global gross domestic product (GDP).
Given the high volume of transactions in the financial services sector, financial instruments have become a popular vehicle for criminal organizations looking for a way to move illicit funds into a legal financial system.
Anti-money laundering regulations (AML) and Combating the Financing of Terrorism (CFT) legislation helps organizations to fight financial crime by detecting and blocking criminals' efforts to make their money appear legitimate.
Transaction monitoring mitigates financial crime risk by tracking high volumes of transactions to detect suspicious activities.
By choosing the right transaction monitoring software product, financial services organizations can comply with regulations and legislation, protect their reputation, and maintain client trust – all of which would be significantly undermined by any involvement with financial abuse and illegal activity.
By watching customer behavior and tracking those identified as high risk, transactions that seem suspicious can be flagged and investigated.
A transaction monitoring system uses rules to ask critical questions about a transaction or activity on an account; is it consistent with the customer profile and risk level, does it fit with expectations, does it match any financial crime typologies, or stand out as an anomaly?
The financial services sector is a prime target for criminals.
It is not just banks that are susceptible to this type of risk; insurance companies, gaming companies, and cryptocurrency platforms that move funds in and out of customer accounts need to be able to identify and investigate any unusual patterns or behaviors that could indicate a possible crime.
Within organizations, various individuals or teams are involved in designing, deploying, and managing the activities that ensure AML compliance. These include compliance officers that oversee anti-money laundering policies and ensure compliance, as well as analysts responsible for putting the proper rules in place to achieve this.
At a more senior level and with a broader remit, the risk officer needs to incorporate AML activities into the overall corporate strategies to mitigate the organization's risks.
The risk and compliance teams in organizations face a wide range of challenges that are complex and change frequently. In some cases, the challenges are internal to the organization and may involve a planned and proactive approach.
In others, there is an immediate response required driven by an external event such as a change to a regulatory requirement or the discovery of a new threat.
Here are some common challenges that need to be understood and managed.
The financial services industry has invested heavily in understanding and addressing their obligations; however, some organizations fail to meet the requirements.
They face increased risk and the penalties imposed by regulators and the associated reputational damage that can have longer-term implications.
With high volumes of transactions being processed 24/7, monitoring for suspicious transactions to and from customer accounts and detecting any issues in a timely fashion requires automation.
Transaction monitoring software allows financial institutions to analyze customers' transaction and event data in near real time, and detect outlier behavior based on sophisticated models. If suspicious activity is detected, an alert is generated.
Compliance and risk professionals can then investigate and report suspicious activity to AML, CFT, and KYC regulators in the form of a Suspicious Activity Report (SAR).
Having effective Transaction Monitoring Software allows organizations to:
To overcome the limitations of legacy systems, organizations need a solution that is designed to respond to their specific requirements. Although some tools automate standard workflows, they do not consider the broader context of the business or adapt rules accurately to prioritize cases.
There are some key features that transaction monitoring software should include to optimize the performance of the risk and compliance team.
Legacy transaction monitoring solutions can struggle to effectively monitor and analyze large volumes of data from all of their active customers' daily transactions. In addition, these systems cannot incorporate additional data or predictive analytics to provide the insights needed for a comprehensive assessment and management of risk.
Lack of data integration and low levels of data quality can lead to suspicious activities going undetected in some instances while also generating poor quality alerts that create high numbers of false positives.
Some legacy systems may have a limited number of transactions they can monitor each day. Depending on the number of accounts involved and the volume of activity, this could mean that not all of the transactions will be monitored, leaving the organization susceptible to financial crime.
The consequence of the inefficiencies of a legacy system is additional risk and unnecessary work for the investigation team as they work through large volumes of false positives that limit their availability to identify and investigate genuinely suspicious activity accurately.
Effective transaction monitoring software can protect the organization from being targeted by criminals and help maintain compliance required by regulatory bodies and law enforcement agencies.
Transaction monitoring is a critical part of AML activities and needs to be robust to respond effectively to the relentless efforts of criminals to launder illegal funds.
Legacy systems lack scalability and focus on specific transactions identified as high risk. This can lead to overlooked suspicious activities, while false positives are flagged for manual oversight by an overloaded investigation team.
By choosing the right transaction monitoring solution, organizations collect and process more data from more sources. Then, using rules that can be quickly tested and deployed, they can respond to the ever-changing challenges of regulatory obligations and criminal activities.
Automating and tailoring monitoring processes allows for more effective transaction monitoring than possible with a legacy system, allowing investigators to focus on critical tasks that truly require their skills and training.
Unit21 offers organizations sophisticated transaction monitoring capabilities that provide control and visibility over all suspicious events. A fully customizable no-code platform, Unit21 enables risk and compliance teams to deploy rules and utilize complex statistical models that lower false favorable rates and improve alert performance, allowing investigators to focus on critical tasks.
If a legacy system limits your organization, you need a solution that gives you the flexibility to tailor workflows and identify suspicious activities more effectively.
Request a demo to see for yourself just how Transaction Monitoring from Unit21 can help you more accurately detect suspicious behavior, and streamline investigations and reporting.