Transaction Monitoring Solution: Mitigating Money Laundering In The Financial Firms

Money laundering is a critical issue for businesses worldwide. According to UNODC, 2% to 5% of global GDP is estimated to be illegal funds that criminals transfer for malicious purposes. Applying transaction monitoring solutions can help financial institutions discourage fraud attempts and ensure compliance with KYC & AML regulations. This way, corporations can avoid hefty fines and legal penalties from global regulatory bodies. 

The following sections take a closer look at the significance of transaction solutions and how their application can help enterprises deter money laundering & terrorism financing cases. 

Transaction Monitoring Solution: A Quick Insight

KYT procedure is a system that offers in-depth analysis for organizations to identify abnormal monetary activities from clients. 

To rephrase, transaction monitoring solutions facilitate financial firms to highlight suspicious activities by associating client profiles with the pattern. 

According to Market Research Future, the global transaction monitoring market size will experience a financial worth of around 39.32 billion dollars by 2030, showing a CAGR of 12.30% from 2022 to 2030.

According to Fior Markets, the need to alleviate money laundering and terrorism financing activities play a vital role in market growth. Additionally, the acceptance of predictive analytics to offer risk alerts and the company’s requirements to follow KYT & AML regulatory obligations are both factors that influence the demand. 

Significance of Transaction Monitoring Solution for Financial Companies

The primary use of KYT is that it empowers companies to highlight suspicious monetary exchange patterns to discourage money laundering & terrorism financing cases. 

KYC protocols are highly facilitative for financial firms because the systems streamline customer onboarding. However, in modern times, the application of know your customer’s measures is not enough. KYC does not give in-depth insight into customers’ financial transactions. For this reason, TM solutions play a vital role in collecting meaningful insights from clients’ monetary exchanges. In reality, KYT offers an analytical approach towards transaction monitoring. 

Complete Procedure Behind Transaction Monitoring Solution 

As per the Monetary Authority of Singapore (MAS), there are 4 phases in the application of TM solution:

Phase 1: Identifying the Customer

In the initial stage and before establishing business partnerships, financial institutions must follow the latest risk assessment framework and CDD measures. The latest systems can highlight the risk associated with customers’ profiles. This empowers firms to identify high-risk entities and perform Enhanced Due Diligence for in-depth analysis.  

Phase 2: Using a Risk-Based Approach

In the second stage of the transaction monitoring process, risk-based calibration becomes essential. Financial institutions must customize the whole system according to business needs. 

The transaction monitoring solution can show high-quality results when there is a proper configuration between parameters and thresholds. Moreover, financial firms must implement back-testing often. It is about analyzing historical data to produce results and calculate risk before spending a company’s capital. This also empowers corporations to determine if any modifications are required in the transaction monitoring process. This facilitates upgrades in the enterprise and supports the accurate observation of customers’ monetary exchanges. 

Finally, in the context of risk-based calibration, firms must keep data integrity in perspective. It points to the accuracy and consistency of information. This can happen by using effective detection control checks which facilitate the completeness and accuracy of data in the TM systems. With this approach, financial institutions can detect, analyze and explain any abnormalities caused by data integrity problems. 

Phase 3: Implementing the Process

When using the transaction monitoring solution, a major challenge that arises is guaranteeing the training of workers who have the responsibility to deal with TM notifications. Businesses need to facilitate the employees through proper guidance and ensure workers’ fitness to do the job. To streamline the TM procedure, companies must perform pre-transaction checks and set up an efficient alert management system. 

Phase 4: Resolving Issues & Enhancing Quality

When financial firms identify that some monetary exchanges are fraudulent, it is the company’s responsibility to file a Suspicious Transaction Report (STR) by getting in touch with an officer immediately. In case, the organization retains the business relationship with clients, there should be proper protocols in place to deal with the risk. This is known as post-STR practices. There must be proper Quality Assurance (QA) to ensure the effectiveness of transaction monitoring procedures. 

The Bottom Line

Using transaction monitoring solution, financial institutions can actively money laundering and terrorism financing cases. This way, businesses can discourage bad actors from exploiting the mainstream cash flow systems. Cutting-edge technology not only identifies suspicious transaction patterns and reports to global authorities to catch criminals. 

Working with a third-party vendor can help Financial Institutions (FI) implement a PCI DSS-compliant service. This innovative approach not only secures a strategic advantage but also strengthens relationships with customers. It boosts yearly profit rates. Hence, the importance of applying a transaction monitoring solution becomes evident.