Whether you want to remove or replace your transaction monitoring system (TMS), the decision and choices can be pretty interesting from time to time. Nevertheless, there are many things to take into consideration and an impressive amount of technology.
Moreover, transaction monitoring can be pretty challenging sometimes. For instance, typologies will change constantly, the risk of missing something large keeps on laundering, and much more.
Well, let’s not wait any further because, in this article, we’ll take some time to identify the 10 factors that you should look into in a transaction monitoring system.
10 Factors you should look into for your transaction monitoring system
1. Flexible deployment
Above all, your priority should be on how you can set up an AML system. For instance, you can consider AML monitoring from SEON. However, depending on the type of vendor, you have three primary options, and they are:
- On the cloud, either hosted by a vendor or yourself
- On a server and your premise
Your personal preferences and regulatory requirements should direct the type of choices you make. For example, some regulators insist that AML systems don’t allow data to leave the server.
Systems hosted on the cloud are popular because of the wide range of benefits they offer, including lower costs and easy maintenance. However, the best thing is to conduct your own research and carefully choose who your vendor will be. Some systems that operate on the cloud might face a few challenges, which can drop their performance.
2. Audit trail and case management
How easy will it be to escalate your alerts to more senior staff members, add attachments, and comments, and have an audit trail of all the activities? Any solution should be able to help you manage your alerts across teams, track decisions made, and ensure regulatory compliance. Moreover, this capability can be challenging to manage internally, but third-party solutions will have a built-in process for managing this.
3. The skill to build and test rules
If there’s one feature you should never underestimate, it’s changing and testing rules. This is because AML primarily depends on the algorithm, and algorithms depend on rules. So the better rules you have, the better your algorithm will be and the lower the false positives and negatives will be.
Especially after the beginning of the pandemic, there has been a huge requirement for companies to re-adjust their rules, and what worked before may not be the same story today. So, adding and modifying new rules is becoming a must.
Traditional Anti-money laundering solutions allow you to return to your vendor and request a new code to be written whenever you desire to make amendments to your rules. But, as you may know, it isn’t cheap to do so, highly frustrating and time-consuming.
Moreover, a modern Anti money laundering solution is much different and will usually offer you the option to set up your own rules and not need to write any code. Modern AML solutions are an excellent choice for users with no technical knowledge, and the best part is that once you set up these rules, you can easily tweak and implement them again.
4. False positives
Many companies with in-house systems will find it hard to modify their rules and apply them to different types of customers. Moreover, if the rules aren’t accurate, it will only result in a higher number of false positives. For this very reason, many firms are adopting buy solutions.
Costs can get to your when your in-house development team starts to shift their focus for a short period of the team during the project. The worst part is that it’ll take away valuable time used to generate profits, such as front-end products, user experience, and processing. Moreover, you may want to consider third-party solutions after calculating opportunity costs that include your team focusing on other time-consuming activities.
Moreover, you also have hidden costs. Hidden costs involve custom software developments and increase throughout the building process. Furthermore, costs may even rise when the management process increases. Ready-to-implement buys solutions will often offer you a license fee that provides continuous support, maintenance, and low-risk financial forecasting.
6. AI integration
AI is an essential part of the transaction monitoring system. Unlike traditional times, AI isn’t a gift anymore but a requirement if you want to successfully fight money laundering activities and many other online financial crimes that are made.
AI can be incorporated onto existing systems and enhance its capabilities by giving it the following options:
- AI can learn how to replicate repetitive tasks
- AI can identify future outliers
These approaches enable many more false negatives and positives to be filtered out and thus, allow you to receive much more accurate alerts.
According to the EU’s 4th Money Laundering Directive, companies need to have detailed and consistent knowledge of their business, risk profiles, consumers, and fund sources. However, when you come up against these international requirements, your business may think that it can’t fulfill them, but the truth is that the penalties and risks associated with it are getting much higher.
Alternatively, you can consider finding a risk-based approach and monitoring risks more efficiently, empowering businesses to meet different requirements and risk profiles associated with stakeholders.
8. A unified platform
A simplified and unified Anti money laundering solution should be able to provide numerous apps such as client screening, transaction monitoring, enhanced risk assessment, and more. To achieve the best results, you should seek to unify all applications within the unified platform you are using.
Using different types of vendors for different Anti money laundering applications or one vendor that doesn’t support a unified platform will require you to close one application before having to open the other one. In addition, integrating important data that you may have from one application might be challenging.
In short, choose a simple unified platform that makes moving data from one application to the other easy and automatically shares data. This won’t only improve operational efficiency but also increase job satisfaction with an enjoyable system.
9. Information on management
Management information is important to maintain for internal and external reporting purposes. It helps you track and manage your performance. If you start to build your transaction monitoring solution internally, it’ll be easy to collect and extract management information in an Excel file or PDF. However, many businesses will try to find third-party solutions since they think it’s much easier to buy this service instead of building it on their own.
You’ve heard this term before, haven’t you? Most companies and firms will use segmentation models to implement in their business departments. However, the objective of segmentation differs across a business, and so do segmentation models. So, while you can’t reuse models from other divisions, you can use them for the same framework and tools. In short, you can use this for sharing skills and knowledge to build segmentation models for AML transaction monitoring.
The main objective of a segmentation model for AML is to create similar groups of customers who have the same risk profiles and transactional behaviors. However, there is one issue with this model, and that is that the large amount and number of thresholds will differ for each customer. For instance, if 20 transactions total $50,000 within a month, it might be a large number for individuals but not too large for corporate members.
Thus, it’s always important to segment your users based on these transactional profiles since they won’t be the same most of the time. Nevertheless, your segmentation strategy can be defined from many other factors, depending on your business expertise and requirements. For instance, maybe you segment profiles based on their risk, income, and much more.
Moreover, never seek to confirm the accuracy of your data before you segment your attributes. For instance, some data you have gathered from KYC systems may not be fully updated. This may produce undesirable effects on your segmentation and transactions monitoring program.
Wrapping it up
That’s all for this article. These are the 10 factors you should look into with your transaction monitoring system. Most businesses are well aware that fraud rates across the world have increased and that is making businesses uncomfortable whenever an online transaction occurs. Transactions possess sensitive information and nobody would be happy to hear that their transaction was unsuccessful or their personal information has been stolen.
Above all, it’s important you set u a transaction monitoring system that prevents fraud and ensures your company is a safe76 consideration for consumers because the second any type of fraud happens within your company will be the second consumers will hardly ever trust you again!