ICT Views

Putting the action into transaction monitoring

by: (Financial Crime Compliance Course Director) on

KPMG have just published their annual AML survey and I don’t think there were any surprises in the results – increased costs, increased senior management interest, PEPs continuing to expose firms to higher levels of risk and respondents continuing to express dissatisfaction with transaction monitoring systems to name a few.

With fines from regulators for AML systems and controls failings keeping AML firmly in the spotlight, there is certainly pressure on senior management to either prevent further failings, or to stop their firms from becoming the next headline – hence 88% of respondents now reporting that the Board of Directors takes an active interest in AML issues. I would wonder about the 12% of respondents where there is no active interest from the Board but I suspect they will be revealed as we continue to see enforcement actions handed out for inadequate compliance with the regulations.

One area close to my heart is that of transaction monitoring systems. According to KPMG this continues to be the area of greatest investment but satisfaction among practitioners is declining. Typically transaction monitoring systems throw up vast numbers of false positives that require resource to review and in firms where few, if any, SARs are generated as a result of transaction monitoring it is easy to understand this dissatisfaction. Transaction monitoring systems are hugely expensive to implement but no matter how much money is thrown at a system, its effectiveness depends on the quality of data the system can draw upon and the expertise of the people involved in the implementation and calibration of the system to ensure relevance of data fed in and the actual rules in use. Transaction monitoring has, historically, been a box ticking exercise to implement an off the shelf product and, unsurprisingly, these are not effective.

Coupled with the fact that many organisations offer a wide variety of products and services, and may be dealing with numerous legacy systems across multiple jurisdictions, it comes a no great shock that only 58% of respondents state that their organisation is able to monitor transactions across different business units, even though this is an improvement in this area.

With greater regulatory focus on transaction monitoring, and regulators requiring firms to justify why they are running certain rules and to evidence the value of these in the context of the products/services/clients they are monitoring, this is certainly an area for continued growth in the AML sphere and an area where those with monitoring expertise will be in increasing demand. It is also an area where firms can continue to expect to spend money.

What is that funny rasping sound I hear? It is the sound of transaction monitoring systems providers rubbing their hands in anticipation.....

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