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Transaction Monitoring Systems: Combating Money Laundering in the Financial Exchanges

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  • Post last modified:June 13, 2023
  • Reading time:5 mins read

Poor Integrations, outdated technology, and traditional onboarding methods are some major issues that financial service providers face. To deal with the issues, It experts are introducing innovative digital solutions which streamline client onboarding, conduct due diligence, and cross-check customers against global watchlists. For financial firms, it is essential to know and track how financial transactions share data between two points. Moreover, the compliance processes are cumbersome and time-consuming. Issues in information retrieval and outdated due diligence procedures hinder the monitoring of transactions for financial institutions. In this scenario, professionals introduced a transaction monitoring process that facilitates financial firms specifically to process chunks of data during exchanges. 

Transaction Monitoring Systems: A Quick Overview

Know Your Transaction (KYT) facilitates service providers to monitor customers’ financial exchanges deeply. Consumers mainly make cash & card-based transactions, cross-boundary exchanges, remittances, and trade finance transactions.

When it comes to third-party vendors, all financial firms must keep track of all essential details of exchanges. The information is important because it offers insight into the purpose and type of monetary exchange made, facilitating further analyses. To accomplish the objective timely, several modern-day firms utilize data models that use various parameters such as customer name, the pattern of transactions, country, and many more. 

The transaction monitoring solution is a type of model that supports banking service providers to monitor financial exchanges and discourage suspicious activities timely. Experts perform the analysis of financial data internally to detect fraudulent exchanges timely. This gives concrete evidence, which facilitates fraud prevention and helps firms evade regulatory penalties. 

According to Markets and Markets research, the transaction monitoring market size will reach around $16.8 billion by 2023, displaying a CAGR of 15.1% for the forecast period (2018-2023). The growth will influence North America, Europe, and Latin America. 

Understanding the Importance of Transaction Monitoring Systems

Financial institutions have to face stringent KYC & AML requirements that international regulatory bodies impose to prevent money laundering and terrorism financing. There is coherence in standards regarding data collection, but still, the guidelines cannot be accepted as internationally accepted regulations. Some jurisdictions have well-defined rules and procedures to follow given requirements, but other governments have given the responsibility to local businesses to come up with a strategy.

Currently, several financial firms still operate on outdated procedures that are error-prone and time-consuming. Once experts perform the know-your-customer procedure, oftentimes, there is no follow-up session to gather updates from clients. This also helps experts calculate risk for effective fraud prevention. After completion of the onboarding process, companies keep clients’ data in paper form until the law demands to store it digitally. This challenges banking service providers regarding the execution of perpetual due diligence procedures on clients without lowering the customer experience.

Rapid digitization in the world has also impacted financial firms in terms of massive financial growth, which attracts fraudsters. In this context, international regulatory bodies stress the importance of following AML protocols. Considering the latest market trends and customers’ demand for transparency; legislators want to introduce strict standards to discourage money laundering. Lawmakers have a mission to protect investors and facilitate financial firms to counter monetary crimes. In this context, only the application of KYC standards is not enough to discourage financial fraud. Implementing transaction monitoring procedures has become essential as well. 

Detecting Fraudulent Transactions

The technological revolution has influenced banking service providers and asset managers worldwide. Financial firms now encourage the use of digital payment systems instead of paper-based approaches. This leads to cashless transactions, which are fast and convenient. Business experts highlight the development in the context of mobile banking that ensures a positive experience for the users every time. 

Providing multi-channel availability, customers can easily benefit from financial services from anywhere in the world. Undoubtedly, in a pile of legitimate transactions, there will always be some fraudulent exchanges that highlight the importance of using transaction monitoring systems. This can identify and discourage money laundering and terrorism financing in real-time. 

Final Remarks

The application of the transaction monitoring system has become a need of modern-day financial operations to prevent fraud. The state-of-the-art KYT solutions use AI & ML algorithms to process vast volumes of data and identify anomalies. 

Working with a verified service provider can help financial firms use a transaction monitoring service that facilitates compliance with AML/KYC regulations. This will protect them from heavy financial fines and permanent bans. 


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