The complete guide to monitoring transactions

Because the number of financial crimes in the world is enormous, every financial company must provide monitoring of transaction aimed at combating money laundering. It will minimize the risks associated with illegal financial transfers and terrorist financing.

What is AML Transaction Monitoring (TM)?

First, let’s answer the question: what is transaction monitoring? It is the process of tracking all financial transactions and, through particular analysis, identifying transactions aimed at money laundering. The system scans and verifies a lot of financial information (money transfers, bill payments, loan repayments, and much more). Such a system allows you to effectively detect illegal financial transactions related to money laundering, terrorist financing, or simply cyber hackers.

Why is AML transaction monitoring necessary?

Any financial company must have measures in place to track financial transactions. These measures will allow for the timely detection of suspicious transactions that could be used for money laundering. Monitoring transactions should be a continuous process of checking all financial transactions. Thus, all financial institutions will be under systemic control and protected from unauthorized transfers.

It will prevent criminal acts and protect the company’s activities from litigation related to illegal transactions discovered by the competent authorities. Thanks to transaction monitoring in banking, it will be possible to recognize various money laundering schemes at the initial stage, representing a whole system of various financial transactions.

Who Needs Transaction Monitoring?

All companies that deal with financial transfers at the legislative level must include measures in their activities to ensure the security of transactions and the protection of users. Measures against cyber hacking must also be taken into account. Let us list the areas of activity in which it is necessary to provide for transaction monitoring.

Provision of financial services

This category includes non-banking financial companies that engage in currency exchange or financial transactions. Each state will have individual security requirements for financial institutions. In addition, such companies will be regulated by local competent authorities, monitoring the legality of all transactions (currency exchange, money transfers).


Banks are not only a place to invest or withdraw funds. They can also offer various services related to lending, deposits, and property insurance. In addition, the bank may be asked permission to take out a mortgage on the applicant’s property. Since banks are a powerful tool for ensuring financial stability in the state, stringent security requirements are imposed on banking systems. Despite taking all necessary measures, banks still have potential risks associated with providing various services (lending, investing).

Payment providers

These services provide the opportunity to transfer money from one person to another. To perform such an operation, the service will require the sender to provide certain information about the recipient. It minimizes the risks associated with the money being received by a recipient other than the intended recipient. Or if the money is not received within the appointed time, the system provides for its return to the sender.

Financial technology area

It includes financial services that are provided using particular technologies rather than classical methods of transfer or exchange. For example, using gadgets to transfer money, pay bills, open a loan, etc. Fintechs are direct competitors to the banking system.

Brokerage companies

A broker is an intermediary in the process of buying/selling securities. That is, the client can refrain from buying, selling, and analyzing the market. The broker will do everything for him. In addition, brokers provide exchange or lending services. The broker works with the buyer and seller until the transaction concludes.

Cryptocurrency exchanges

The cryptocurrency industry has spread throughout the world. And its financial turnover is simply enormous. Therefore, companies associated with cryptocurrency activities are exposed to substantial financial risks associated with money laundering and economic terrorism. To reduce these risks, high-quality monitoring of financial transactions will be required.

Insurance companies

Many prefer to insure property (house, apartment, car) and life. For this reason, substantial money transfers are carried out through insurance companies, especially when paying off insurance. And for financial fraudsters, this is a favorable springboard for illegal activities. Therefore, it is only possible to do with transaction monitoring.

All of these areas of activity are subject to high risks associated with using their service for money laundering. Therefore, financial transaction monitoring software is essential.

What Does AML Transaction Monitoring Detect?

Since monitoring AML transactions is necessary to detect various illegal financial activities, we will next look at what exactly such a check can detect:

  • money laundering – obtaining money through illegal activities;
  • financing of terrorism – providing financial assistance to terrorist groups;
  • fraud – a process in which one person (or several persons) deceives another person (or group of persons);
  • drug distribution includes all activities related to drugs: production, purchase/sale, distribution;
  • bribery and corruption – influence the decision-making of a certain person at the expense of the money offered to him;
  • the theft of confidential information (personal data) occurs when a criminal can gain access to another person’s bank account.

Therefore, transaction monitoring has many possibilities for detecting criminal activities.

How do you set up an AML transaction monitoring process?

How does the transaction monitoring process flow? In order for AML transaction monitoring to be effective and efficient, various methods and system operations will need to be used to achieve the desired result. Let’s look at what is included in comprehensive monitoring.

Risk Assessment

At the initial stage, it is necessary to correctly assess the risks and data required when implementing transaction monitoring in AML. At this stage, it is necessary to detect financial transactions that may serve as money laundering or a source of financial terrorism. In addition, the types of transactions and the degree of possible risk associated with them are determined. To increase efficiency, it is necessary to take into account the individual characteristics of a given financial company (or service), for example:

  • location;
  • client base (private and legal entities);
  • financial scale of the institution;
  • types of services provided.

The more real characteristics are considered, the more accurate and practical the risk assessment.

Designing the AML System

When identifying potential risks is completed, an anti-money laundering system should be developed. This system must meet the established requirements for a given financial company – for example, the selection and use of software and various innovative technologies that will detect unauthorized actions in financial transactions. In addition, the system should provide multiple security-related alerts and recommendations for further action in a particular suspicious situation.

Testing the AML System

An important aspect is testing transaction monitoring systems. It is necessary to ensure that the software is uninterrupted and functioning correctly. Testing also allows you to ensure that the system will immediately detect unauthorized actions and respond in the prescribed manner. For this stage to be practical, it will be necessary to carry out several tests of the system to determine its reaction under various illegal scenarios.

Applying the AML System

An anti-money laundering system can only be operated according to a specific sequence of processes, namely, upon completing comprehensive testing and eliminating identified errors from the program. At this stage, it is possible to train operators on using this system to form protocols for tracking and notification when illegal transactions are detected.

Constant Monitoring and Maintenance

Constant transaction monitoring AML and maintenance will be required to ensure the system’s stable operation. Also, after a specific time, an update may be necessary during its use due to the development of innovative technologies, which financial criminals also use in their criminal activities. Therefore, the degree of possible risks will change, and the system must be adjusted to new rules and regulatory requirements to ensure high security.

Reporting and Escalation

The anti-money laundering system software must be designed to automatically notify the system to the competent authorities when suspicious transactions are detected. It will allow regulatory services to respond promptly to take measures to ensure security and block the actions of financial criminals.

If all financial companies apply these methods, this will minimize the criminal actions of financial fraudsters, ensure a high level of security for transactions, and protect user funds.

How Does an AML Transaction Monitoring Software Work?

Transaction monitoring software is integral to ensuring the security of the service and the ability to detect money laundering. Such software is a unique application whose task is to see illegal transactions in the financial transfer system. The application works analytically when comparing financial transactions according to specific criteria. The application is equipped with innovative schemes and machine-learning techniques. It provides the ability to scan and analyze enormous amounts of financial information.

The system works according to certain principles – determining the limit values of the number of financial transfers or their amount. Also, all transactions are identified using the database of a user or organization registered with law enforcement as suspicious. In addition, they are compared with a list of persons who have already been involved in money laundering cases. Each transaction will be checked against specific legal requirements and re-tested for compliance.Transaction monitoring system helps detect money laundering and terrorist financing, which is critical to financial institutions’ security. Such checks will not only protect the organization itself from financial criminals but also ensure the safety of its clients.

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The complete guide to monitoring transactions

Because the number of financial crimes in the world is enormous, every financial company must provide monitoring of transaction aimed at combating money laundering. It will minimize the risks associated with illegal financial transfers and terrorist financing.

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