Transaction monitoring software tracks the user’s transactions including deposits, transfers, and withdrawals. The main objective of the software is to check any dubious activity which includes financial crimes such as terrorism funding and money laundering.
Transactions that are flagged as dubious by the KYC transaction monitoring system, are analyzed whether the alert is a false positive or a true hit. If the transaction appears as true hits, they are recorded in STR and reported to the regulatory authorities to suspect the threat of terrorism funding and money laundering. Sectors that come under money laundering standards are strictly obliged to monitor their transactions continually.
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KYC Transaction Monitoring Process
Firms can conduct transaction monitoring in money laundering cases using different ways. The process of chosen mentoring system would depend on the factors unique to each company such as;
- The complexity, size, structure, and geographic reach of the firm
- Culture of the firm
- client profile, including intermediaries if any
- Associated operational risk
Transaction Monitoring – A Risk-Based Strategy
No matter which type of KYC transition process a firm chooses, the global regulatory bodies expect to see enhanced due diligence for the clients who are considered as high risk by the KYC risk rating system. In transaction monitoring terminology it means having a risk-based approach and altering it according to the risk level associated with the particular client.
The FATF advises that the financial sector must modify its transaction monitoring system according to the client risk profiles as well as firms’ risk analysis. Furthermore, The FATF suggests that customer due diligence or transaction monitoring should be carried out daily or when any dubious transaction has been observed.
The JMLSG advises conducting simplified due diligence in the case when the risk associated with the customer or their transactions is considered low. If the risk associated with any client is greater, then enhanced due diligence is required to gain further insights and manage the risk effectively.
Transactions can be monitored as a batch process in which all the transactions are provided to the system and are examined by the end of the day. They can also be tracked with a real-time process in which all the transactions are examined as they just occur. Conducting know your customer transaction via a real-time process is not a legal requirement but it helps in making fast and timely decisions and also real-time payments.
Importance of KYC Transaction Monitoring
- Expand the Financial Circle
As technology has progressed, so does the field of financial transactions. Digital payment systems have grabbed much attention as compared to the cash system because they save users’ precious time and allow the payments to be completed very quickly. As the monitoring scope of the AML system expanded, more effort is needed to control digital payments. Thus, AML compliance has become an absolute necessity.
- Comply with Changing Regulations
With the evolution in technology, fraudsters have also revised their techniques to carry out heinous crimes such as terrorism funding to comply with Changing Regulations
d money laundering. This is why regulations are changing to combat sophisticated frauds. Regulatory bodies have made AML transaction monitoring essential for the financial sectors. Having a transaction screening software would not only help the banks and financial firms prevent fraudulent transactions but also facilitate them in complying with regulations and also prevent them from heavy financial sanctions.
- Detection of Financial Crimes
Digital payment methods and online processes have made banks, and other financial entities a breeding ground for fraudulent and criminal activities. Having risk-based transaction monitoring systems and stringent AML regulations would help companies detect dubious and complex financial crimes.
- Access to Necessary Information
Companies should know how to obtain the data they need. This is why the transaction screening software should be easy to understand for the firms. They could access the data easily when required and save their time for those tasks that need much attention.
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KYC transaction monitoring is a must thing for all those sectors that come under the money laundering regulations. Transaction tracking might follow a simple, conventional rule-based strategy or be upgraded with neural networks such as artificial intelligence to track any dubious transaction and provide analysts with greater understanding.
Effective transaction monitoring uses both software and human expertise that can successfully identify and separate innocent transactions from those that are considered dubious and threatening to the firm. Besides providing greater security, it should be easy to operate and must provide users with a great experience.