Over the past few years, transaction monitoring with regard to anti-money laundering (AML) and counter terrorist financing (CFT) has become essential. In October 2019, the three main European Supervisory Authorities (ESAs) published their 2nd Joint Opinion on the risks faced by the EU’s financial sector as a result of money laundering (ML) and terrorist financing (TF).
The Joint Opinion highlights the “very poor” controls relating to ongoing monitoring, including transaction reporting. This raises significant concerns, especially for businesses such as banks, payment institutions, e-money institutions and investment firms, given that the nature of their business is “based on large volumes of transactions being processed quickly.”
Transaction monitoring is a challenging task. Depending on each firm’s business model, firms are generally required to monitor customer transactions in real-time and on a daily basis based on clientele profiles and risk levels. This includes assessing historical and current customer data to form a complete view of the customers’ activities.
Given the amount of time and resources required to manually carry out transaction monitoring in an effective manner, many firms opt instead for automated transaction monitoring solutions.
Why is transaction monitoring so important?
Transaction monitoring is vital to prevent ML and TF crimes before they occur. No firm wants to get caught up in ML and/or TF scandals.
While the reason behind monitoring customer transactions is particularly evident when it comes to combating ML, there is also a less evident but equally important reason why transaction monitoring is crucial for CFT.
Unlike money launderers, criminals looking to finance terrorism may not try to conceal their identity and may use legitimate funding sources, typically in small amounts. Also, if they are not already known to pose a threat, they will not be caught during the sanctions screening. This means that the initial customer identification and verification procedures firms put in place may not be that effective when it comes to CFT. This is where effective transaction monitoring kicks in and becomes key in fighting terrorist financing.
Since transaction monitoring can potentially prevent ML or TF, firms that do not adequately monitor their customers’ transactions run the risk of being used as vehicles for criminal activities and face severe consequences.
Additionally, taking the necessary measures to monitor transactions and building a robust AML and CFT procedure gives partners and potential clients the confidence to work with you. In other words, it helps build trust.
Therefore, failing to do proper transaction monitoring may not only cost you your reputation but also lead to severe regulatory, financial and legal implications.
The ESAs recommend that national competent authorities carry out targeted inspections with a particular focus on transaction monitoring.
With the issuance of Circular C361, CySEC urges regulated entities to consult the aforementioned Joint Opinion to improve their AML/CFT systems and controls.
How can MAP S.Platis assist you?
Our team can offer:
- Reviewing and revising your AML/CFT manual.
- Bespoke compliance health-check reviews of AML/CFT procedures, systems and controls, and issuance of relevant reports and recommendations.
- Help setting up adequate AML/CFT monitoring systems, procedures and mechanisms.
- Development and recommendation of tailored and practical remedy actions.
- Training of employees on AML/CFT rules.
- Additional help with Q&As.