Considering the fact that Money Laundering has become a common practice and disrupted businesses worldwide Transaction Monitoring System, it has become the news room’s ‘Hot Topic’ for quite a while. Most elite business tycoons and Politically Exposed People (PEP) are found guilty of this white-collar crime. According to the Financial Crimes Enforcement Network’s (FinCEN) research statistics, between 1997 to 2017, a huge amount of 2 trillion USD was suspiciously transacted. Moreover, as per The United Nations, sound 90% of the black money is yet to be explored. The digitally advanced era has, somehow, brought relief to the Financial Institutions in terms of identity verification procedures by introducing Transaction Monitoring Systems.
TMS – A Step Ahead of Criminals:
Programmed to combat financial crimes, a Transaction Monitoring System (TMS) is integral to the prevention of money laundering and terrorist financing. It keeps a track of the customer’s current and historical interactions by closely monitoring his transactional activities i.e. transfers, deposits, and withdrawals. The intensive inspection by the transaction monitoring software detects any suspicious activity that could potentially lead to money laundering, instantly. Any activity, labeled suspicious by the system undergoes further investigation to prove if it actually is involved in money laundering. If it turns out to be a true hit, it is filed as a Suspicious Transaction Report (STR) to alert law enforcement.
TMS’s significance in AML procedures:
Anti Money Laundering (AML) and Know Your Customer (KYC) regulations, if adequately applied in the business security process, account for the authenticity of the customer’s identity, preventing potential financial crimes. With the advancement in technology, the digital identity verification market, like any other field, has experienced significant transformations in identity processes. Adhering to that, the addition of efficient transaction monitoring processes to the AML procedures holds a vital position. All financial institutions tend to actively engage in the integration of TMS software in their security systems to watch out for doubtful transactions from customers.
Know Your Transaction – Real-Time Transaction Monitoring:
Know Your Transaction (KYT), an advanced version of KYC is software that actively assists the transaction monitoring process. It performs the vital function of enabling the organizations to crucially analyze the transactions against any skeptical activity by linking the customer’s profiles with their personal transactions. In order to generate accurate and effective results, the KYT software processes original data sources of the customers i.e. contracts, purchase invoices, etc, through an automated process.
The need for KYT in Financial Institutions:
The reason KYT is popular among banks and other financial institutions is their exposure to financial crimes. These institutions are the easiest prey of terrorist financing activities. The September 2001 World Trade Centre attacks led FATF to put AML regulations on the financial institutions. Know Your Customer solution, despite its risk management techniques, does not suffice the fraud prevention of banks, etc. With the mere function to screen and monitor the customer’s identity, it lacks the characteristic to thoroughly analyze their transactions. This is where the need for a stronger system was identified and KYT verification came to the rescue. Hence Know Your transaction procedures were incorporated that worked with AML regulation to provide a continuous checkup of monetary transactions generated by the customers whilst performing Customer Due Diligence Protocols when required. Automated and consistent surveillance of the accounts of the customers, correspondents, and third parties effectively deals in risk management and fraud prevention. KYT solution provider combats a variety of frauds including, bribery, money laundering, identity thefts, etc.
Know Your Transaction Limitations:
Traditional methods of monitoring customer transactions through transaction monitoring software i.e. KYT left some loopholes that could prove to be extremely challenging for the business. The customers formerly labeled as ‘low risk’ have a high possibility to develop an intention of money laundering in the future. Since the banks run a Standard Due Diligence (SDD) on low-risk customers, they very easily fail to stop any potential risks posed by such customers. Keeping the entire situation in view, KYT limitations have been imposed that particularly engage in deterring the implication of any such fraudulent activities by the use of AI automated systems.
Artificial intelligence in Transaction Monitoring Software:
The AI integrated software is increasingly being brought into use and almost all businesses are benefiting from it. Similarly, the financial security market has been involved in adopting AI automated transaction monitoring systems. Hence, their financial assets have since been subjected to enhanced security against money laundering and terrorism funding. Moreover, every single customer is thoroughly monitored for risk assessment and fraud prevention. The process proceeds to generate a Customer transaction Report (CTR) and any suspicious activities detected during the process are reported in the Suspicious Activity Reporting (SAR) file. The SARs are an integral part of the transaction monitoring system that reaches the financial authorities upon detection of fraud and enhances further security.