Transaction Monitoring
Transaction Monitoring is the practice of financial institutions and regulators constantly reviewing and analyzing customer transactions to detect and prevent potential money laundering, terrorist financing, fraud, and other illegal activities.
Example #1
For example, if someone suddenly deposits a large sum of money into their account without a clear explanation, transaction monitoring would flag this unusual activity for further investigation.
Example #2
Another example could be monitoring repeated cash deposits just below the threshold that triggers reporting requirements, which could indicate an attempt to avoid detection.
Misuse
Misuse of transaction monitoring could lead to privacy violations and unjustified account freezes or closures. For instance, if transaction monitoring algorithms are too sensitive, they might flag normal transactions as suspicious, inconveniencing customers and potentially damaging their financial well-being. It's crucial to ensure that transaction monitoring is calibrated accurately to avoid such unfair consequences.
Benefits
One significant benefit of transaction monitoring is its role in safeguarding consumers from criminal activities. By detecting and stopping illegal transactions in real-time, financial institutions protect their customers from potential financial losses and maintain the integrity of the financial system.
Conclusion
Transaction monitoring plays a crucial role in upholding transparency and accountability in the financial sector. By actively monitoring transactions to identify and prevent illicit activities, both consumers and businesses benefit from a safer and more secure financial environment.
Related Terms
KYCCompliance ProgramRegulatory Compliance