🔹 Definition
Transaction Monitoring refers to the ongoing process of reviewing customer transactions—financial or otherwise—to detect suspicious behavior or patterns that may indicate money laundering, terrorist financing, fraud, or other financial crime. This is a core pillar of AML/CFT programs, enabling institutions to identify, escalate, and report anomalies in real time or through periodic batch analysis.
Effective transaction monitoring uses a combination of rule-based engines, risk scoring, and increasingly, AI and machine learning to evaluate transaction data against known typologies and customer risk profiles.
🔹 Frequently Asked Questions (FAQs)
Q1: Why is transaction monitoring important in AML/CFT compliance?
- Helps detect unusual activity that may not be visible during onboarding
- Enables timely filing of Suspicious Transaction Reports (STRs)
- Aids in risk re-assessment of customers based on behavior
- Required under FATF Recommendations, MAS AML Notices, EU Directives, and BSA (U.S.)
- Supports a risk-based approach to customer due diligence
Q2: What types of activities are monitored?
- Cash deposits and withdrawals, especially large or structured amounts
- Cross-border wire transfers, particularly to high-risk jurisdictions
- Use of third-party payers or beneficiaries
- Rapid movement of funds between accounts or entities
- Transactions inconsistent with the customer’s stated profile or occupation
- Use of new channels, such as crypto wallets or prepaid cards
Q3: What tools or methods are used for transaction monitoring?
- Rule-based systems (e.g., flag all cash deposits over S$10,000)
- Behavioral analytics to identify deviations from customer norms
- Risk scoring models that combine customer and transaction data
- Machine learning models trained on historical STRs or fraud patterns
- Real-time or batch processing through compliance monitoring platforms
Q4: What should a good transaction monitoring system include?
- Customizable rules for different risk levels, industries, and geographies
- Case management functionality for investigation and escalation
- Audit trails and alert logs for regulatory review
- Integration with KYC/CDD profiles, sanction/PEP lists, and adverse media
- Ability to support ongoing due diligence (ODD) and risk reclassification
Q5: What are the compliance risks of weak transaction monitoring?
- Failure to detect and report suspicious activity in time
- Regulatory fines or sanctions for AML program deficiencies
- Facilitating criminal activity unknowingly (e.g., money mule networks)
- Reputation damage, loss of banking partnerships, or license suspension
- Difficulty in passing regulatory audits or inspections
