Anti-Money Laundering (AML) transaction monitoring is a method used by financial institutions to monitor customer accounts for illegal behavior. For example, transaction monitoring can help detect and prevent money laundering and terrorist financing.
Anti-money laundering laws state that when suspicious transactions occur, the financial institution must act quickly to investigate. The firm must confirm that nothing illegal has taken place or file a Suspicious Activity Report (SAR) with the proper authorities such as FinCEN. Transaction monitoring streamlines this process. It helps stop criminal activities in the financial system.
How does AML transaction monitoring work?
In the past, most firms used a manual system to perform transaction monitoring. In fact, some smaller institutions still take a manual approach.
Unfortunately, manual systems cannot catch problems as quickly as automated solutions. Furthermore, they don’t have AI and machine learning capabilities. These advanced technologies allow AML software to spot patterns and identify otherwise hidden activity.
Today, most banks and financial institutions conduct AML transaction monitoring with the help of automated software. These solutions create a profile of each customer’s financial habits and history. Then, the program tracks customer transactions, including deposits, withdrawals, wire transfers, and more.
This real-time tracking compares the transactions with the customer’s established profile. It looks for anomalies in transaction types, amounts, frequencies, and more. When it discovers suspicious activity, it sends out an alert. The financial institution can then take the necessary steps.
Over time, the software can refine customer profiles using their ongoing transactions and other financial activity. This allows it to flag suspicious activity faster and more effectively. It provides a risk-based approach that helps the financial system stay safe.
AML software must include strong security and provide a reliable paper-trail. This way, when illegal activity does occur, investigators have the data they need to resolve every case. AML transaction monitoring software gives financial institutions the power to create more accurate SARs in far less time than with the manual approach.
Why is transaction monitoring important?
In the United States and beyond, the government requires financial institutions to file a SAR any time suspicious activity occurs. These regulations help governments identify and stop illegal activity at the source. As a result, financial institutions need an advanced transaction monitoring system to more easily fulfill their legal obligations at a minimal cost.
In recent years, more and more governments and financial regulators have realized the importance of proactively combating money laundering. This illegal activity can range from drug trafficking to terrorist financing activities. The Bank Secrecy Act (BSA) did not go far enough, as it focused just on cash transactions. Now, governments require financial institutions to conduct more rigorous AML transaction monitoring procedures.
Both New York’s Part 504 and Europe’s Fourth Money Laundering Directive do just that. These regulations require AML transaction monitoring for all high-risk relationships. Furthermore, the Financial Action Task Force (FATF) has developed recommendations for international standards on combating money laundering and terrorist financing.
How do I choose an AML transaction monitoring solution?
To get started, check out our article 10 Steps to Choosing the Right Compliance Solution. In summary, if you’re looking for a feature-rich, zero-maintenance solution built by AML compliance experts, Beam has the best solution. Request a demo today to see how Beam can revolutionize your transaction monitoring compliance strategy.