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What is transaction monitoring?

Transaction monitoring is an observation process of money transfer or the movement of money from one contact to another. And why do the banks use that? That is so that they can catch any illegal activity within the interactions. Like money laundering and so much more. This process gives them the security they need to have to run a bank or a business.

The process starts when a transfer is happening. It observes the type of processing. If the processing is fishy somehow, then the report will be submitted as the suspicious transfer report. Then the handling team will take care of it. If there is a false alarm about any suspicions then there will be also action taken to clear out the confusion and that is how it works. It is a vital step for maintaining a business and the bank activity as well.

What is the transaction monitoring process?

There are s many types of financial crime tracking processes and one can choose the best way for his business. But that processes have to be according to the type that suits your business. For that, you have to monitor sudden parameters like:

  • Sector, size, complexity, and geographic reach
  • Customer profile, including any intermediaries
  • Corporate culture 
  • Associated operational risk
  • The risk-based approach:

There are several approaches that one can choose when it comes to transaction monitoring. But the thing is people want a risk-based approach to this method. They want a system that will be customized for a customer that has a lot to be suspicious about and thus to care for their businesses. 

Financial Action Task Force (FATF) advises that one customer should have an individual dedicated profile that will show them the risks of that customer. And they want to go to that with an assessment process. 

FATF also suggests that this kind of assessment should always be carried out focusing on every transaction continuously. 

The thing is this kind of assessment will come to neutralization at some point when a customer will consider risk-free. They will not be examined that frequently based on their transaction frequency and the interaction’s nature.

The risk-based approach was first introduced by the Third Money Laundering Directive in 2005. It later became central to adopting the global FATF Recommendations.

  • Batch Vs. real-time approach:

We are here to discriminate between two types of transaction monitoring. One is the batch mode. In this process, the transfers are analyzed in batch mode. Not in a constant manner. When a batch of the transfer is done then ‍the data is sent for analysis and then they have a report of all the analyses of the interactions. 

On the other hand, there is real-time observation. It happens continuously and it is faster than the batch time one.

Transaction monitoring recommendations

Napier is dedicated to solving all finance-based crimes and they are devoted to following some recommendations for this purpose.

  • Adopt flexible rule building

Rules and regulations are a vital part of transaction monitoring and that has to be flexible that can be improved anytime for any need. ‍also, the rules have to be easily customizable and the rule has to have specific freedom to compensate for any emergency legality. 

  • Enhance rule-based systems with AI

It is a kind of process where a customer is considered suspicious when they have spent more than 10,000 Euros. And they have to face an interrogation about the transfer and thus this process is usually done. 

As we can observe this traditional assessment is not so effective all the time and can be a reason for the occurrence. As this simple process can fail anytime.

But when it comes to AI, all the things that are happening are going to be more precise. Then a set of rules can be precisely followed and one can have a great result when it comes to any kind of assessment. AI is capable of detecting any kind of suspicious behavior. Also, a really good tool to monitor unknown and known and act according to that. AI can change the way we think about financial crimes.

  • It should be streamlined and start with the customer 

Traditional assessments are super basic. They are provided with the transfer details in a snapshot. Which is useless and that is why we need a smarter and more sophisticated way. 

The AML TM process should be applied in terms of this because: 

It can provide a sophisticated and more potent way to deal with financial crime by monitoring the customers in every aspect.‍

Also, this process is versatile because one can easily develop this system according to their need and purpose and thus improving their business for good.

Why is transaction monitoring essential for AML regulatory compliance?

It is a process that is done to protect a business or an organization from financial crime. To keep your precious hard work away from any kind of crime-related problem, it must have a process. 

Someone needs to have the proper technology, communication, and human experience also to conduct a proper monitoring system that can provide a lot more than a business should have. In addition to crime-solving, it should have the intelligence to cope with a regular observation routine thus proper protection.  

There are a lot of services that are available in the market to support you in the process. Yes, it is very much viral for AML regulatory compliance and we have additional support also. Like:

  • ‍Transaction Monitoring
  • Transaction Screening
  • Client Screening
  • Client Activity Review
  • Risk-based Scorecard Review

All these processes altogether can provide such protection that is very potent and lead to a very strong environment to run a smooth business.

Frequently Asked Questions (FAQs):

What is a transaction processing monitor (TPM)?

It helps to disguise disjointed and distributed networks, creating homogeneity from a heterogeneous collection of software applications and thus creating a proper environment for applications and any kind of processing.

What is transaction monitoring in AML?

  • Money Laundering
  • Terrorist Financing
  • Fraud
  • Drug Trafficking
  • Bribery
  • Corruption
  • Identity Theft

What is a noncash transaction?

It is a transfer of money in contacts, in between businesses, and any other reason that requires no cash in general. It is the new way of money transfer and a very smart way also. Although it is very technological-based and more efficient than usual, it also comes with a lot of backing points.

What do routine transactions mean?

It is an automatic way to transfer money from one contact to another this system is run with the help of some hardware and software as well. It is a very crucial way to maintain a business very smoothly.

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