In today’s world, where data breaches are commonplace, it is more important than ever to have a transaction monitoring system in place. A transaction monitoring system is a software that collects, analyzes, and flags suspicious activities within customer transactions i.e: transfers, deposits and withdrawals. 

The process of transaction monitoring is compulsory for banks and other financial institutions. 

By understanding what a transaction monitoring system is and how it works, your company can be better equipped to compete in the market. The goal of the system is to provide early detection of potential fraudulent activity, so that your company can take appropriate action to prevent losses and consequently help your company compete.

Wondering how to improve your company’s competitiveness with the help of a transaction monitoring system? This article will help you understand its importance.  

Ace the Anti Money Laundering (AML) process

Money laundering causes harm to the business in the sense that the company’s funds are used for illegal activities. According to a United Nations study, around 2 – 5% of global GDP or $800 billion – $2 trillion is laundered globally every year. The reputation of a country and its financial institutions is also at stake, as it can be seen as being complicit in the crime. 

The money laundering system typically consists of 3 stages: placement (where the funds are moved from direct association with the crime), layering (in which the trail of money is hidden or disguised in some manner) and integration (the money reaches the criminal organization in a way that makes it seem like a legitimate source of income.)

The process of money laundering has been made easier by globalization and the increased use of technology. In order to stay ahead of the curve, it is important for companies to have a transaction monitoring system in place that can detect suspicious activity. 

There are anti-money laundering (AML) regulations that need to be followed by financial institutions. The process is regulated by government institutions and there are aml transaction monitoring rules that should be followed. 

A transaction monitoring system allows setting of AML thresholds and generate real-time alerts if they go over those limits. The system helps follow the pillars of AML and its compliances. Companies that fail to follow AML compliances and meeting the AML requirements have to pay large sums of money in fines, which reduce your competitiveness. 

Ease of filing a Suspicious Activity Report (SAR) 

A suspicious activity report (SAR) is filed by a financial institution when it detects suspicious activity within a customer’s account. The purpose of the SAR is to alert law enforcement of potential criminal activity. A SAR is used for criminal investigation purpose and for taxation. 

A company that fails to report SAR violates the AML laws and can be penalized. Banks often fail to file SAR timely and have to face serious consequences. An example is of Capital One which was fined $390 million when it failed to file SAR. To avoid this from taking place, some transaction monitoring software have the features to automatically file the SAR. 

Even though the initial process of integrating and monitoring the system may drain a company’s budgets, the investment surely pays off. In addition, regular software updates are also costly. However, companies can save up on the fines that they will otherwise have to pay if they fail to monitor the AML compliances. 

With a transaction monitoring system, the process of filing the SAR becomes hassle free. Not only do you avoid fines this way, but also the team can focus on other important developments that can help give the company an edge in the market. Filing the SAR on time also involves detecting fraudulent activity before it is too late. 

Detecting fraudulent activity in the initial stages

Understanding customer behavior is crucial in detecting fraudulent activity. 

Some transaction monitoring systems are also testing the usage of machine learning to better understand customer behavior which will consequently help them improve detection rates. Machine learning works by analyzing past data to identify patterns that may be indicative of fraudulent behavior. 

For example, if previous activity of a particular customer who suddenly started making large withdrawals from their account was deemed as a fraud, this data can be fed to the program. The algorithm is then trained to detect occurrences of any similar behavior and alert the relevant people. By understanding customer behavior, companies can be better equipped to detect and prevent fraudulent activity.

Flagging suspicious activity consumes a lot of resources. By using a transaction monitoring system, you can improve the efficiency of your reporting process and reduce the amount of manual work for the investigation team. The simpler process will help your company save time and money, consequently improving your competitiveness. 

Make Use of Electronic Audit Trails & Other Features

An electronic audit trail can be used to track the history of a transaction and identify any suspicious activity. In addition, a transaction monitoring system has the feature of setting velocity rules. The rules allows you to set upper limits that help you identify any rapid movement of funds or patterns in customer behavior that may be indicative of fraudulent activity. 

It is important to note that a transaction monitorin system is not a perfect solution and there will always be false positives. However, by having a system in place, your company will be better equipped to detect and reduce the number of false positives. In this way, you can save time and resources that would otherwise be spent investigating leads that turn out to be dead ends.

Some other features of a good transaction monitoring system is its ability to generate reports, set up alerts, and integrate with other software systems. 

A well-designed transaction monitoring system can improve the accuracy and efficiency of your reporting process. The system will allow you to integrate with other software systems, such as your accounting and financial software to help make your reporting process more streamlined. 

Reduce the Manual Process 

Previously, the process of identifying and flagging suspicious transactions was done manually. With a transaction monitoring system, you can reduce the amount of manual work for your investigation team and improve the accuracy of your reports by identifying and flagging only truly suspicious activity. 

A well-functioning transaction monitoring system is one that is designed with the latest technology in mind. An analysis that that makes use of machine learning tools combined with human expertise is bound to give results that help prevent fraudulent activities. The software allows you to process a lot more data as a company scales which will require a lot of resources if the process is done manually.  

Before a SAR is generated, companies need to dig in to details manually when an unusual activity is spotted. Some questions that need to be answered are if there are any major changes in the client’s life and if the client was associated with adverse media. If the answers to the questions are in the affirmative, then the person becomes a possible candidate for a SAR. 

Now imagine carrying out this process for thousands of individual account holders. Not only is the manual process extremely time-consuming, but also prone to error. Here a company that makes use of a transaction monitoring system is likely to remain competitive. 

In addition to that, tech-enabled transaction monitoring will also discourage financial criminals from targeting your company in the first place, thereby improving your company’s financial position. 

How Will Your Company Become Competitive?

In order to avoid risks and protect your business, you need to have a transaction monitoring system in place that can help you detect any suspicious activity. A transaction monitoring system can help give your company a competitive edge. 

Reports from a transaction monitoring system are particularly helpful when it comes to audits. Internal audits are essential to ensure team members are educated. Furthermore, it can show how the company is doing when compared to others in the industry. By having this information on hand, you can quickly make changes to improve your bottom line.

The benefits of having a transaction monitoring system are numerous:

1. reducing the chances of  fraud and money laundering

2. protecting the company’s reputation

3. complying with regulations

4. deterring criminals

5. improving the company’s competitiveness.

The last point is one of the most important reasons why having a transaction monitoring system is essential for companies today. The sooner you have an efficient and upgraded system in place, the better positioned your institution will be to compete in the marketplace. 

In short, preventing fraudulent activity and deterring financial criminals from targeting your business is essential in order to compete in today’s global marketplace.