Bank Transaction Monitoring – A Vital Measure to Combat Financial Crimes

The twenty-first century is all about the revolution in digital technologies. However, the digitization of every sector has led to the emergence of non-traditional security threats like cybercrimes. It has paved the way for fraudsters, identity thieves, money launderers, and terrorist financiers to commit various financial crimes. Financial institutions like banks and cryptocurrency exchanges have become cybercriminals’ targets. Cybercrime in the finance sector includes identity theft, fraud, money laundering, etc. These crimes harm not only the security of customers’ data but also the integrity of the financial organization. Bank transaction monitoring is crucial to contain financial crimes like money laundering because illicit funds are transferred via bank accounts.

Why KYT Verification Is Important For Your Bank

The global financial system has become highly complex due to robust digitization and simultaneous cyber crimes. According to a report, 95% of international transactions now occur via digital transaction methods, emphasizing the drastic change in the banking system. Therefore, know your transaction or KYT verification holds immense significance, mainly in banks, to strictly check all financial transactions. Bank transaction monitoring is vital because fraudsters and financial criminals having illegitimate funds may use banks as a medium of illicit funds transfers. Furthermore, phishers can trap a bank’s customers to gain access to their personal information for unlawful actions. All such activities are detrimental to the customer data and the bank’s reputation because it creates a trust deficit between the organization and its customers. Hence, bank transaction monitoring leads to vigilant surveillance of the transactions occurring through your bank, ensuring AML compliance. It eventually saves the organization from AML/CFT non-compliance penalties and reputational damage while securing customer retention.

Know Your Customer Transaction Solutions

The transactions carried out through digital or mobile banking services worldwide include trade finance, card, domestic, cross-border, bill payments, etc. The global digital banking market is projected to reach USD 1,610 billion by 2027, advancing at a compound annual growth rate of 8.9 percent. As mentioned earlier, KYT refers to evaluating financial transactions to detect fraudulent activities and identifying potential criminals involved in money laundering and terrorist financing. It is a critical policy to ensure anti-money laundering and counter-terrorism financing compliance with utmost commitment. Know-your-transaction revolves around the transparency of monetary transactions for which banks seek external software services. There are numerous SaaS, also known as software as a service, providing companies that offer their KYT solutions to banks for seamless bank transaction monitoring. Their digital KYT solutions enable banks to implement systemized transaction checks to prevent any opportunity for fraud or financial crime through continuous monitoring for AML compliance.

Concept of AML Transaction Monitoring in Transaction Monitoring System

The AML-based transaction monitoring system is a bank transaction monitoring procedure to mitigate money laundering and terrorism financing specifically. It provides banks with tools to identify any unusual financial transfer and comply with the established AML and CFT regulatory obligations while dealing with customers. It follows a risk-based approach and aids banks in assigning risk profiles to customers based on their transactional records. Bank transaction monitoring occurs in real-time, thus, KYT solution providers offer tools that can assess the transactional history and predict future patterns of money transfers. The tools aid banks in producing a Suspicious Activity Report (SAR) in accordance with the customer’s actions. The report is sent to regulatory authorities for in-depth investigation to detect any suspicious activity FATF is the prime inter-governmental organization overseeing financial transactions and activities so the process of AML bank transaction monitoring also includes the surveillance of customers according to the FATF grey and black lists. It is crucial for AML and CFT compliance.

Risk-Based Transaction Monitoring

The customers are screened against FATF lists and judged according to other lists, including Politically Exposed Persons (PEPs) and Influential Persons (IPs). Moreover, banks must track their customer’s financial history and check whether they are linked to any organized crime network, money laundering group, or terrorism financing clan. The risk-based transaction monitoring aids banks in identifying potential criminals and fraudsters during the customer onboarding process, whereas keeping a vigilant eye on customers that have unusual transaction patterns. The bank transaction monitoring system uses the information collected during KYC procedures to evaluate and understand the risk posed by a particular customer.

It is also significant for banks to understand the concept of high-risk transactions in terms of business. It refers to any type of credit card payment with a high financial loss risk. Banks may assign three risk categories to companies, i.e., low, mid, and high-risk. High-risk businesses, including foreign and stock exchanges, are vulnerable to financial losses. Banks must be cautious when dealing with firms with high-risk transaction profiles to ensure secure transactions.

Automated Suspicious Transaction Monitoring Through Software

Bank transaction monitoring is essential in tracking suspicious financial activities, mainly to keep a watchful eye on high-risk customers. The transaction monitoring software aids banks and other financial organizations in detecting suspicious transactions, such as large cash amounts, automatically. The software works by monitoring every dataset related to a transaction and checking it against the risk rules. It makes the system automatically flag highly suspicious accounts or block any action, such as the unknown source of funds, amounts surpassing certain limits, and large cash withdrawals or deposits. Automated bank transaction monitoring through software is an ideal way to track suspicious transactions and maintain an audit of all transactions. It aids your bank in establishing a good image in front of regulatory authorities while increasing customers’ trust. Overall, it proves vital in AML/CFT compliance, saving the bank from hefty fines and other penalties resulting from compliance failures.

Simply Put…

The entire discussion emphasizes the significance of transaction monitoring in organizations, especially financial institutions such as banks. Bank transaction monitoring leads to an enhanced banking experience for the institution and its customers because it protects customers from fraud. Furthermore, it secures the transaction activity through a bank by identifying high-risk customer profiles that might be linked to money laundering groups and terror financing networks, ensuring AML/CFT compliance.

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