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Transaction Monitoring
Transaction monitoring is the continuous review of clients' transactions to detect unusual or suspicious activity. It applies Know Your Transaction (KYT) principles by comparing transaction behavior against a customer’s risk profile, expected activity, and predefined rules, helping banks identify potential financial crime and meet regulatory requirements.
Synonyms
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Acronyms
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TM
Examples
A bank monitors transactions on an account typically used for low-value domestic payments. Transaction monitoring system detects a sudden increase in high-value international transfers to higher-risk jurisdictions and generates an alert, which is reviewed by a compliance analyst to assess whether the activity aligns with the client's profile against the KYT, the Source of Funds, and whether further investigation or reporting is required.
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FAQ
What are common red flags in transaction monitoring?
Red flags can include unusual volumes or frequencies, transactions inconsistent with client profile, and unusual counterparties.
How can AI and machine learning enhance transaction monitoring?
AI can identify complex patterns, adapt to new risks, and reduce false positives compared to rules-based monitoring.
What actions are taken when suspicious activity is identified?
Suspicious activity is investigated and if warranted, reported to authorities via Suspicious Activity Reports (SARs).
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