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Successful Transaction Monitoring: Overcoming Challenges

Transaction monitoring is a key part in the defence against money laundering and financial crime. It is the process of identifying and reviewing anomalous activity and transactions before deciding to report any suspicious activity to law enforcement.

A successful process should monitor transactions against pre-defined rules and thresholds, anticipated activity; and should rely on a strong partnership between technology and operational expertise.


However, many institutions struggle with implementing adequate transaction monitoring systems and processes which puts them at risk of regulatory and legal intervention.


The Commerzbank case is a good example of such regulatory intervention: in early 2020 the bank was fined for AML failures, including long-standing weaknesses in its automated tool for monitoring money laundering risk on transactions for clients1.

Also in 2020, the U.S. Treasury issued a nearly half a million-dollar penalty against a top compliance official for failures in underlying anti-money laundering program tied to capping transaction monitoring alert volumes at U.S. Bank National Association (U.S. Bank).


But if the risk of reputational damage and the risk of incurring hard-hitting penalties is so high, why do firms continue to struggle with transaction monitoring?

According to the trade association UK Finance, there were 34.9 billion consumer payments made in the UK during 2019; with 85% of these payments being spontaneous. During the same period, there were 4.4 billion business-to- business and business-to-individual payments made in the UK.


Monitoring even a portion of these successfully will be difficult without adequate skilled resources and technology, especially as the technology and the methods criminals use to launder money are constantly evolving.


Finding the needle in the haystack


Finding the proverbial needle in the haystack – the anomalies that point to suspicious activity is still proving to be challenging. In the UK, the National Crime Agency received only 478,437 Suspicious Activity Reports (SARs) between April 2018 and March 2019. It is implausible to make a direct comparison, but at a glance this number, when compared with the billions of transactions that flow through the banks daily, raises concerns that volumes of SARs is too low, indicating that large numbers of suspicious transactions are going undetected. While it is impossible and inaccurate to compare the total amount of payments versus the number of SARs based on numbers alone – they still simply do not tally.


The amount of money being laundered through the financial service industry is immense but the sheer number of transactions are colossal – having the confidence that systems as controls are adequate to protect against this issue is challenging to say the least.


Risks of getting it wrong


In recent years, regulatory penalties for AML failings have been eye-wateringly high, with the likes of Standard Chartered being fined $1.1billion, and Westpac AUS$900 million. More damaging though is the hit to an institution’s reputation which can affect business and the bottom line for years after.


The operational gap


Technology will continue to play a significant part within the transaction monitoring process. But for the foreseeable future the manual element and ultimate decision-making still lies within operational teams. Presently, the gap left by technology is that operations teams must manually review alerts and look through large volumes of historic transactions and data to qualify a decision to escalate or discount an alert. This manual and subjective decision-making process is another control point where illicit activity may slip through the gaps.


This risk can be reduced by building and maintaining sustainable and high-performing teams and strategising the set-up of operational teams to leverage new technology.


Transaction monitoring managed service: The game changer


Bringing effective technology and high performing teams together is a “game changer” in developing a successful transaction monitoring programme. An effective transaction monitoring managed service can enhance transaction monitoring controls if operated by experienced personnel who have a single focus rather than additional internal responsibilities.


Having specialist compliance analysts and subject matter experts with the experience of working with technologists supports technology implementation and the continual performance of the controls.


How we can help


Lysis Operations offers AML execution for client on-boarding, refreshing and remediation, including client outreach, due diligence, regulatory classification, PEPs, sanctions and screening. This is in addition to AML Transaction Monitoring execution.


We provide our services to financial service institutions including wholesale and investment banks, as well as organisations from a range of other regulated industries, such as estate agency businesses. In addition, our clients include cryptocurrency-related businesses and legal firms.


For further information and to discuss how we can help you, please contact: Nick Kinloch, Head of Lysis Operations at nick.kinloch@lysisfinancial.com






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