Composite of man with mask on phone, drawing of washing machine, money, and digital transactions

A well-designed transaction monitoring system is a crucial component of an effective anti-money laundering (AML) compliance program. That’s particularly true in a post-pandemic world. COVID-19 pushed financial institutions (FIs) to double-down on their already massive investments to meet digital customer demands. This digital shift has also created massive opportunities. FIs that rise to the challenge have a tremendous market in front of them:

Achieving a truly digital-first banking operation comes with its own set of challenges.

As FIs eye the benefits of the digital shift (both through their own preparedness and ongoing investment and development), they mustn’t lose sight of the risks associated with increased digital transaction volume. Regulatory obligations continue to press forward, and FIs are expected to employ the same technology used within their business on risk controls.
COVID-19 not only forced a rethink of product development — compliance teams must also reimagine their control framework. They must confront this shifting landscape holistically, from transaction capture to process workflow, to reporting, and finally, governance.

Many organizations continue to use platforms that are plagued with historical issues. Lack of enterprise data access, legacy technical debt, suitability for purpose — all contribute to increased costs and operational burden. Many systems tend to evolve from an untuned, rules-based system. Unsurprisingly, they often result in high false positives. It’s an inefficient way to operate given the technology available today.

Machine learning = effective transaction monitoring for compliance teams

Machine learning solutions allow compliance teams to reduce risk exposure, automate mundane processes (and decision making, depending on your appetite), and work on alerts that matter. Focus on solutions that primarily rely on quantitative, data-driven statistical analysis. They provide more accurate detection because they “learn” as they’re fed data. Take note that simply purchasing a license and implementing a solution isn’t enough. Organizations should ask themselves if they are ready to harness the possibilities of machine learning.

There are a number of steps FIs need to take to prepare their compliance teams and business for advances in transaction monitoring technology.

The AML System Landscape

The Current State of AML Transaction Monitoring 

  • Evolved from rules-based systems.
  • Have “glued on” analytics to make more informed decisions and identify patterns of potentially suspicious activity.
  • Proven to be suboptimal: rigid workflows, noise in the output, laborious operational changes necessary when processes are updated. 
  • Extremely high false-positive rates = inefficient return on investment + analyst fatigue + increased risk exposure.

The Future of AML Transaction Monitoring Solutions

  • Transitioning towards quantitative, data-driven statistical analysis tools.
  • Incorporate the ability for your system to “learn” as customers interact with your business.
  • Ingests disparate data from all areas of your enterprise in a seamless fashion.

The Challenges to Achieving the Future of AML Transaction Monitoring

  • Internal views on the importance of transaction monitoring aren’t aligned with regulatory obligations that need to be addressed (internal views tend to be more aligned with the concept of “doing the minimum”).
  • There is often a perception that transaction monitoring is a one-size-fits-all approach that doesn’t need to be tailored to fit organizational needs.
  • Data inconsistencies and disparate locations — data is very much scattered across the organization and captured in various forms by various tools, making it very difficult to leverage for actionable decisions.
  • Misaligned thresholds while tuning.
  • Exploding operational costs compounding with budgetary constraints.

Opportunities for Financial Institutions

  • Improve your data sourcing.
  • Enhance operational workflows and how teams interact and collaborate.
  • Employ stable, nimble technology to pivot your business to meet rapidly shifting market requirements.

Want to gain even more insights for how AML transaction monitoring solutions can help you in a digital-first banking world? Download our detailed guide, How to Evolve Your Suspicious Activity Detection.