It is undeniable that the world of technology is moving at such a fast-tracked pace, that criminals are always finding innovative ways to avoid detection when carrying out illicit activities and transactions. As such, scrutiny of transactions is an essential part of preventing and combating money laundering. Conducting transaction monitoring through automated systems has become fundamental in today’s era since the high value and volume of data and transactions have rendered manual transaction monitoring highly inefficient and, many times, ineffective.
Thus, nowadays, the main concern is not whether a subject person has a system in place, but rather whether the system, together with the transaction monitoring processes which the subject person has adopted, is efficiently and effectively identifying suspicious activity and preventing such activity from taking place or re-occurring. Whilst on today’s market, one can find several transaction monitoring systems boasting the latest features, subject persons usually fail to consider that having a system is not the end, but the means to an end. More often than not, it is a common misconception that having a system in place is enough to capture suspicious activity.
In reality, even some subject persons that have adopted transaction monitoring systems, repeatedly struggle with effectively meeting transaction monitoring requirements and encounter a number of challenges which relate to:
- Poor KYC data
- Lack of knowledgeable resources, leading to inadequate detection models or rules
- Poor governance around alert handling
Poor KYC data
Irrespective of the transaction monitoring software in place, the operation would need to collect correct, complete or updated KYC data to be used as the benchmark for the system to assess against.
A shortcoming in this process will lead to transaction monitoring efforts producing inaccurate results and poor quality alerts, including excessive volumes of false positives, which become difficult and time-consuming to manage. This also creates a risk of subject persons missing out on relevant alerts which would warrant analysis and potential reporting to the relevant authorities.
Lack of knowledgeable resources, leading to inadequate detection models or rules
A system should be able to cater for the conditional formatting of rules and parameters, enabling monitoring to be carried out against known customer information. In this regard, the detection rules which trigger alerts should not be uniformly applied but should be calibrated in line with the specific business model of the subject person.
Operations are often faced with a lack of knowledge as to how to use the system in a way which meets their business needs. Additionally, the guidance and knowledge of an AML expert is also required in order for the operation to be able to effectively handle and action the alerts generated by the system. Simultaneous application of the right business and AML principles would ensure that the system is calibrated in a way which optimises the transaction monitoring efforts of a subject person.
Poor governance around alert handling
After implementing an automated system and calibrating it in line with business needs, the next step in ensuring effective transaction monitoring is the proper handling of the alerts generated and acting upon them. In spite of technological advances, this process requires an element of human intervention which can only be carried out effectively by resources with a sound Anti-Money Laundering (AML) background acquired through tailored training. When planning such training, subject persons should make sure to keep staff updated on the business operations and products of the subject person including evolving typologies of how such products could be abused of.
Subject persons need to bear in mind that the entire Anti-Financial Crime function is aimed to end with one culmination point: the submission of suspicious activity to the relevant authorities. A subject person’s efforts thus need to start with gathering the correct customer data, on the basis of which, ongoing monitoring is carried out, leading to alerts being generated when unusual or suspicious activity is identified which are then considered by adequately trained staff. Through transaction monitoring processes, a lot of customer data is being analysed. Although alerts would pertain to specific transactions, they cannot be seen in isolation and in this respect, the importance of having a connection between the different systems and processes in place cannot be emphasised enough as information obtained through transaction monitoring could prompt the need of an update in other data sources such as KYC data. In this way, the subject person would be reaping the full benefits of investment made in the transaction monitoring space.
The above point was in fact weighed upon during a panel discussion titled ‘Applying FinTech to Transaction Monitoring’, which took place during the Financial Crime Compliance Conference held by PwC Malta on 19 October 2022, and through which distinguished panellists, including officials from the FIAU and MFSA, gave their input on the use of FinTech solutions when carrying out transaction monitoring.
How can we help?
At PwC Malta, we have a fully-fledged AML/CFT team with significant local and international expertise, which can help you ascertain that you are effectively meeting legal and regulatory requirements whilst making the most out of your investment in technological compliance systems.
Through our collaborations, we can also suggest compliance solutions which allow subject persons to address AML transaction monitoring requirements by automatically identifying suspicious behaviour in real-time or on a scheduled basis while minimising false positives using AI technology. Moreover, we can also assist you with a large array of services which include: carrying out KYC data remediations or assessing whether this is needed; calibrating your detection rules in a tailored manner in line with your operation’s needs; carrying out system process audits to ensure that you are making the most out of your investment; amongst others.
Contact us to set an appointment and discuss how we can be of help.
