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Overcome Challenges of Financial Firms with Compliance Transaction Monitoring

Transaction screening is essential to the anti-money laundering (AML) compliance package, which thoroughly pursues customer money proceedings. Compliance transaction monitoring comprehends the nature and objective of fund transfers initiated or sustained by the customer or the institution. It is one of the requirements of AML/CTF regulations or policies to detect money laundering risks in case any related transaction is found. Read the article to understand more about transaction screening in the fintech world.


Article Highlights

  • Quick outline on transaction monitoring 
  • Explore the potential risk factors encountered by the corporations
  • What are the Signs of Fraud 
  • Learn the AML evasion techniques during financial transaction screening
  • How compliance transaction monitoring conquers the above challenges.


Transaction Monitoring – A Quick Flash

Transaction screening or payment monitoring – a risk-based approach inaugurated into the business world that works on the principles of inspecting and detecting illegal activities. This methodology categorizes consumers based on their risk profiles and the information they provide. The transaction monitoring approach focuses more on high-risk profiles by implementing strict screening techniques to detect unusual behaviors.  

All the transactions that are executed and initiated by the consumers or any third party are required to be monitored accurately. The approach of payment screening is based on different parameters, including KYC details obtained at the time of account opening or the onboarding process. The fintech transaction monitoring strictly adheres to the regulatory requirements while protecting the companies against money laundering and other illegal operations.


Potential AML Risk Factors Encountered by Financial Industry 

Preventing risk factors is the top concern of the financial industry, and to combat these crimes, fintech companies should fulfill AML commitments in the states where businesses are operated. Creating an AML compliance program is crucial in identifying potential risks to avoid unwanted consequences. In other words, some of the critical risk components that fintech companies must consider while operating transaction monitoring:

  1. The corporation’s distribution chain. 
  2. The degree of hazard associated with each region of the fintech sector.
  3. The extent to which the fintech company engages with intermediaries and third parties. 
  4. The outcome and customer risk profile.
  5. The size and volume of transactions.


What are the Signs of Fraud in the Financial Sector?

Money laundering and terrorist financing are global concerns for digital businesses that risk damaging companies’ assets more than other fraudulent activities. Encountering these operations is obligatory for the companies to protect their firms.  Following are some of the indications that should be taken under consideration while conducting transaction monitoring:

  • Frequent transaction 
  • International deposits and credits 
  • Inclusion of foreign currency transactions 
  • Contradictory payments methods
  • High-risk counterparties 
  • Unusual assets 
  • Involvement of virtual currencies

These are some of the behavioral patterns companies should be aware of while inspecting consumers and their transactions. During the payment screening, financial sectors should consider the cases that include wire transfers for the other states, followed by several credits and withdrawals. All these indicators should be deemed and analyzed to stay ahead of any mishap coming up. Furthermore, learn about the AML evasion techniques and benefits of transaction monitoring. 


AML Evasion Methods During Financial Transaction Monitoring 

Undoubtedly, the AML act has been serving the companies with its robust and successful approach to assist the companies in the best way possible. However, some techniques are executed by the imposters to dodge the systems and execute their payments. To stay ahead of the criminals, companies are required to stay ahead of these dodging techniques fraudsters incorporate into the financial sector. 

  1. Involvement of Shell Companies – Fraudsters use shell corporations to execute illegal funds. They often trick the legal system and create illusions of legal money dealings. It makes it challenging for legitimate authorities to trace funds from their origins. However, by complying with KYC regulations, companies can protect themselves from getting associated with shell companies.
  2. Virtual Currencies to Launder Money – Imposters involve foreign currency exchange and trading virtual money to hide and cover their illegal funds. This practice refers to the techniques integrated into the financial industry to launder money without getting caught.
  3. Smurfing This technique involves the layering of funds to make it complicated for the legal systems to detect, and financial criminals can execute their transactions efficiently. They divide their large amount of money into small chunks to avoid reporting detection. However, FATF and other regulatory bodies have worked on combating these crimes and assisting the financial sectors to ensure security.


How Does Transaction Monitoring Procedures Overcome These Challenges?

Let’s dive into the key benefits that come with a proper risk-based transaction monitoring method in the fintech world that encounters all challenges occurring in diverse forms:

  1. Improved threat mitigation
  2. Enhanced efficiency of internal compliance processes
  3. Ensured regulatory compliance
  4. More authentic fraud identification


Final Statement

Compliance transaction monitoring inspects suspicious operations, including illegal money laundering, terrorist funding, crimes, and other financial fraud. The screening methodology includes determining patterns and trends indicating unusual patterns and drooping transactions for further investigation. The robust approach overcomes all the disputes faced by the financial sector.

Harsh Mistri

Harsh Mistri is a Digital Marketing Consultant and professional Blogger. He has 6+ years of experience in SEO, SMO, ASO, Blogging, ORM & Google Ads. He loves Blogging Very Much.

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