Are your transaction monitoring controls effective and efficient?

Strong people, processes, and technology, underpinned by robust governance and management information are the key pillars for any anti-financial crime (AFC) framework. In partnership with Resistant AI, we offer a holistic review and assessment of your transaction monitoring-related systems and controls to identify areas of non-compliance, inefficiencies and opportunities to enhance effectiveness.

A holistic review of the current transaction monitoring process including the associated documentation, appropriateness of rules and alerts handling to assess compliance with regulation and identify opportunities for further enhancements and greater effectiveness.

An examination of the current transaction monitoring system’s performance including historic alert outcomes from rules to identify opportunities to boost investigative productivity, address the noise generated from ineffective rules, and reveal the risks hidden in your data.

A review of transaction monitoring resources and capacity to suggest the optimal team structure and identify any existing gaps in knowledge or expertise.

A review / creation of an effective financial crime governance model (including associated management information), aligned to the processes and technology.

By providing practical recommendations and examples, this comprehensive review of transaction monitoring assurance aims to offer you peace of mind regarding your regulatory compliance while also equipping you with the knowledge to enhance the effectiveness of your transaction monitoring controls.

This includes:

✓ Prioritised recommendations for addressing areas of non-compliance

✓ Suggested target operating model for transaction monitoring related processes

✓ Highlighting opportunities for improving control effectiveness, including through the use of artificial intelligence (AI) and machine learning (ML) models

Advice from the regulators

The UK Financial Conduct Authority’s “Dear CEO Letter for Payment Firms”, issued in March 2023, notes that firms often ‘fail to maintain and evolve their controls framework, in line with or ahead of business growth’. Recent fines on Coinbase and Danske Bank have shown that transaction monitoring frequently lags behind current business operations and generates alerts based on outdated rule sets. This creates unpredictable spikes in alerts, and the consequent backlogs put operations at risk. These case studies highlight the importance of a transaction monitoring system that is robust, and regularly tuned and tested for effectiveness in identifying relevant risk typologies.

In its March 2023 Guidance Paper on ‘Transaction Monitoring, Screening and Suspicious Transaction Reporting’ the Hong Kong Monetary Authority recommended that firms ‘establish an effective assurance programme to regularly and independently review the quality and consistency of alert clearance’.

Observations should be used to enhance transaction monitoring systems and processes, and firms should periodically ‘review the adequacy and effectiveness of the transaction monitoring systems and processes’. As outlined in the paper this should include an assessment of:

Transaction characteristics
The risk factors, parameters and thresholds used (whether or not these generate alerts)
Any alert prioritisation or discounting mechanism applied to ensure they remain optimal and address ML/TF risks
Changes in business operations and new and emerging ML/TF typologies.

This is further supported by guidance from the Bank of Lithuania issued in February 2023, which highlights that firms must ‘periodically review and assess the effectiveness of their rules and criteria’. Whether you are rolling out a new transaction monitoring solution, reviewing your existing one, or adapting for growth, having specific transaction monitoring testing assurance is key.

We’ve pulled together a transaction monitoring assessment checklist, which covers the key areas you should be considering when assessing the effectiveness of your transaction monitoring model.

Download now

Why use AI in transaction monitoring?

AI is fast becoming a powerful tool in fighting financial crime. Increasingly recognised and supported by regulators and adopted by financial institutions, AI has progressed from theory and laboratory-confined studies to real-world, successful use.

One of the most rewarding use cases is the use of AI in transaction monitoring. It strengthens the anti-financial crime function by overcoming weak processes and inefficiencies, identifying more incidents of suspicious behaviour, promoting quicker decision making, adapting in real-time, and facilitating a firm’s scalability.

AI is a growth-enabling tool that can identify money laundering and fraud and provide huge efficiency gains for financial services firms of any size. Relying on rules-based systems that are ‘good enough for now’ not only forfeits the benefits of AI, but carries a number of risks. Rules-based systems are inherently reactive rather than proactive. AI enables firms to identify fraud and money laundering as they occur, meaning firms can act immediately before too much damage is done. Consequently, AI-enhanced transaction monitoring can limit a firm’s overall exposure to financial crime.

While rules-based systems can be low-tech and easy to understand, they rely on manual input and ongoing management that can quickly become time-consuming. AI tools can be an asset for scaling businesses, enabling them to be comfortable with expanding their operations and taking on new risks by making them better able to mitigate them.

In the transaction monitoring space, AI tools have been shown to improve efficiency and effectiveness and are endorsed by regulators and industry leaders alike. AI is being used by many financial institutions right now, in real-world scenarios, to mitigate multiple types of risk.

Download the white paper

Download the informative and exciting white paper, ‘Why AML Needs AI: Debunking the Myths for FinTechs’, co-authored by FINTRAIL and Resistant AI.

We debunk some of the common myths around AI adoption, discuss the benefits AI can bring to firms of all sizes and offer practical guidance for achieving concrete outcomes.

Download Now

Watch the on-demand webinar

Join FINTRAIL, Resistant AI, Kroo Bank and FINOM for a 30 minute session to debunk some of the common misconceptions around adopting AI for AML, and hear real-life examples of how accessible, transparent and impactful it can be, even for smaller firms.

Watch now

Speak to our team to find out more about a transaction monitoring review.