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Transaction Monitoring System: What is it and What is its Importance

Transaction monitoring system is a vital part of anti-money laundering (AML) processes, especially with the rise of technological advancements and the resultant increase in cybercrimes. All banking institutions such as banks have some sort of transaction monitoring and AML systems in place to keep an eye on suspicious activities and inconsistencies that they mind in their executive functioning.

Transaction Monitoring System: What is it and What is its Importance

As this requires intensive and thorough assessment, as well as a meticulous reporting structure, most institutions prefer the use of an automated system.

What is Transaction Monitoring?

Transaction monitoring is process through which businesses and institutions can track and keep tabs on the transactions made by the customers on a daily basis. This can be done through the transaction history of a person’s deposits, withdrawals or transfers, or any other forms of monetary transactions. A transaction monitoring system usually uses information from KYC processes to assess the intensity and probability of client risk. These are investigated to detect a pattern, alerting the compliance and AML officers in case of suspicious activities, through the creation and filing of Suspicious Activity Reports (SARS).

Why is Transaction Monitoring Important?

Various sources such as AML and counter-terrorist financing (CFT) requirements, SARs, internal and external reporting, etc. are employed by institutions to obtain relevant information needed for a fruitful and effective transaction monitoring process. Many people have started to recognize the importance of transaction monitoring as a part of the basic regulatory requisite.

The first reason to pay attention to transaction monitoring system issues is that through transaction monitoring it gets easier to predict and spot a suspicious transaction, and save the company from being caught up in a fraud or a money laundering scandal. Moreover, having a well-established transaction monitoring system ensures the trust in your capabilities and builds confidence and repute of your company in the market. It assures your partners and clients that you take AML and CFT regulations set by the Financial Action Task Force (FATF) seriously.

Transaction monitoring also allows a company to take a calculated and risk-based approach as they can consider a number of factors to assess the potential risk of the clients, such as type of employment, social status, country of residence, and the like before they make a decision. After determining the risk posed by the customer, the can adjust the degree of monitoring required.

An institution can either build a transaction monitoring software in-house or choose a third party vendor. In both cases, it is necessary to keep in mind the scalability and flexibility of the software, as the regulations are very dynamic and change constantly. Equally necessary is the presence of an audit trail that provides a clear picture of the things happening and keeps you updated on any changes observed. We recommend our eSurveil API portal, a software that provides all these services with a holistic approach. Visit our website at to find out more.

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