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Real-time transaction monitoring: is your compliance team up to date?

Led by the digital transformation and the disruptive technologies that have enabled it, the world of finance services is evolving fast. Although this is great for consumers, things are moving at such a fast pace that financial institutions, merchants, and service providers are having a hard time keeping up.

Many solid, proven financial products, services, and processes that have been around for decades have become obsolete in next to no time as a result, and this is creating a myriad of challenges for financial institutions.

This is especially true for online banking and payments, where technological innovation has widened access to anyone with an Internet connection, enabled instant payments across borders, and multiplied the number of payments services available by a factor of who knows what.

It has encouraged widespread adoption not only by consumers but also bad actors such as money launderers and fraudsters who have seen such widespread technological innovation as an opportunity to get their hands on more money. This highlights the need for real-time transaction monitoring in addition to other safeguards such as fraud checks and sanctions screening.

What is real-time transaction monitoring?

Transaction monitoring is exactly what it sounds like. It refers to the monitoring to customer transactions, including assessing both current and historical customer information and interactions to paint a complete and clear history of customer activity. It’s a process that seeks to identify suspicious behaviour that could indicate financial crime such as money laundering.

Although transaction monitoring is a process that has been performed by financial institutions for decades, widespread connectivity and rapid technological innovation has necessitated a shift away from manual human-led transaction monitoring processes to automated tech-led processes that happen in real time as transactions take place.

Post-event transaction monitoring is a common alternative to this, usually done by processing thousands of transactions in batches on a weekly or monthly basis. However, this fails to allow businesses to react until well after the transaction is complete.

Why does real-time transaction monitoring matter?

You only need to look at modern banking to see why real-time transaction monitoring has become the standard for anti-money laundering.

In a matter of hours, a customer can open a bank account online, move funds, and close it down again, well before traditional transaction monitoring processes like batch sorting could identify potential money laundering and alert fraud teams. With real-time transaction monitoring in place, systems can detect potential instances of financial crime and intervene, preventing it from occurring at the point in time that it’s taking place.

Given the increasing stringency of anti-money laundering regulations [e.g., the EU’s recent passing of the 6th Anti-Money Laundering Directive (6AMLD)] and the greater scope of predicate offences, not to mention the potentially severe penalties that await firms who fall out of compliance with anti-money laundering requirements, it has never been more important for financial institutions to tighten up their transaction monitoring—and doing so starts with implementing real-time transaction monitoring.

When deployed into a firm’s tech stack, a robust real-time transaction monitoring tool will be able to automatically detect a wide range of criminal activity, including:

  • Money Laundering
  • Terrorist Financing
  • Fraud
  • Drug Trafficking
  • Bribery
  • Corruption
  • Identity Theft

What are the benefits of real-time transaction monitoring?

Real-time transaction monitoring is a tech-led process that typically uses artificial intelligence (AI) to automatically monitor transactions and other customer activities to identify and prevent financial crimes such as money laundering and terrorist financing. Some of the benefits of using a real-time transaction monitoring solution include:

Identifying suspicious activity: Real-time transaction monitoring tools can be quickly set up and deployed to identify customer activities that fall outside of expected or permitted profile and network patterns. These are usually fully customizable, enabling compliance teams to define their own rules.

More effective over time: Led by AI and machine learning, real-time transaction monitoring gets better over time as it not only learns from itself but also any fine-tuning or rules that are implemented by compliance teams, all without third-party technical support.

Process automation: Real-time transaction monitoring is an automated process that minimizes false positives and doesn’t suffer from the same drawbacks as traditional human-led processes do. The result is higher accuracy, which means that compliance teams can be more confident in alerts that the system produces.

Everything in one place: Third-party transaction monitoring solutions provide compliance teams with a high-level view of their customers’ profiles and activities. Our solution for example, pulls together all customer information alongside transaction data so that compliance teams can detect threats earlier and make informed decisions.

Take the next leap in real-time

It’s no secret that the rapid pace of digital innovation has made it more difficult for compliance teams to keep ahead of financial crime, particularly in the banking space where criminals can now move illicit funds at a pace never seen before. Without the right safeguards in place, these bad actors can fly under the radar and potentially leave firms on the hook for severe penalties.

Fortunately, real-time transaction monitoring tools make AML transaction monitoring a simpler, painless process by providing constant 360-degree automated coverage. If you’re interested in how a tool like this could support your compliance team, request a free demo of our transaction monitoring solution today.