Glossary > Finance > Regulatory And Compliance > Anti-Money Laundering (AML)

Transaction Monitoring

Transaction Monitoring is the process where financial institutions, like banks, continuously observe and analyze customer transactions to detect unusual activities that may suggest money laundering, terrorist financing, or other financial crimes. This monitoring helps ensure compliance with regulatory requirements and protects consumers and the financial system from illicit activities.

Example #1

For example, if a customer suddenly deposits a large sum of money that is inconsistent with their usual transaction history, transaction monitoring algorithms will flag this activity for further investigation.

Example #2

Another instance could be if a series of small cash withdrawals is made in quick succession, which might indicate structuring, a tactic used to avoid triggering reporting requirements.

Misuse

Misuse of transaction monitoring can occur if financial institutions rely solely on automated systems without human oversight. This can lead to false positives, where legitimate transactions are incorrectly flagged as suspicious. It's essential to balance technology with human expertise to prevent unnecessary disruptions to consumers' financial activities.

Benefits

The benefit of transaction monitoring is that it helps detect and prevent financial crimes, protecting consumers from fraud and ensuring the integrity of the financial system. For instance, by identifying and reporting suspicious transactions promptly, banks can help law enforcement agencies investigate and combat illicit activities effectively.

Conclusion

Transaction Monitoring plays a crucial role in safeguarding the financial system and consumers from illicit financial activities. By diligently monitoring transactions, financial institutions uphold compliance standards, maintain consumer trust, and contribute to a more secure marketplace.

Last Modified: 4/29/2024