Why AML Transaction Monitoring Analytics Are Essential

Financial services firms are under more pressure than ever to prove that their approach to anti-money-laundering (AML) transaction monitoring is working. Regulators want to see evidence that firms are generating the right level of suspicious activity reports (SARs) for their size, geography, and business types, usually in the form of statistics and reporting. In turn, boards and senior management teams are demanding to see this same information to be sure compliance obligations are being met.

As a result, AML transaction monitoring analytics are in more demand than ever before. Here are nine key reasons why financial services firms are putting AML analytics dashboards and reports in place:

1. Monitor increasing transaction volumes. More and more financial transactions are being completed through electronic means, from buying a pint of milk at the store to paying bills. The growth of various means of electronic payments, and decline of cash payments, means that there is a much higher volume of transactions that need to be monitored by AML technology systems. Understanding how these changing volumes should be driving a firm's AML compliance program can be challenging.

2. Evolving with regulation. As the global fight against money laundering and terrorist financing continues to escalate, new rules and regulations continue to be promulgated. For example, there are at least nine bills with AML content working their way through the U.S. Congress. When implementing regulatory change programs, compliance teams need to be able to understand the impact new policies and processes have on the profile of the risks presented by the client base. They also need to understand how efficiently and effectively AML case analysts are able to conduct their work in light of the impact rule changes may have on the time they spend on cases.

3. Matching the growing sophistication of financial crime. Criminals are becoming more and more sophisticated in how they seek to launder money through the financial system. For example, they often try to structure transactions or crypto-businesses and virtual assets to evade detection. Spotting trends like these within AML solutions can be challenging without the right analytics.

4. Reconciling multiple compliance systems. Medium-size and larger financial services organizations - particularly those that have grown through mergers and acquisitions - can have many different compliance systems across their organization. These systems can sit siloed within lines of business or geographies, for example. Creating a single, organization-wide view manually can be time-consuming and prone to error. Analytics makes this task easier.

5. Understanding multiple data sources. AML transaction monitoring systems are usually fed by multiple data sources across the organization, which often creates significant data governance issues. Firms may not fully understand what data is being fed into their transaction monitoring solutions, or how the quality of that data impacts how well the AML software performs.

6. Engaging with proprietary vendor systems. For some firms, an AML transaction monitoring system can seem like a “black box.” They do not know how to retrieve the information they need from it. IT departments often do not have the time or the resources to help AML teams create the dashboards and reporting they need. Specialist expertise in creating just the right analytics for the AML team can save time and increase efficiency.

7. Managing the rising cost of compliance. Financial services firms are struggling with the cost of compliance. New AML rules, increased regulatory-enforcement focus and higher transaction volumes mean the overall effort involved to do AML transaction monitoring to the right standard is increasing. One way to keep an eye on costs is through the monitoring of operational analytics. Firms can use this data to better understand how individual analysts are performing their role.

8. Avoiding the huge risk and financial implications of non-compliance. There is no doubt that failing to do AML transaction monitoring properly can result in real damage to firms. For example, in 2018 financial regulators around the globe issued more than $2.9 billion in fines related to AML compliance failures - exceeding 2017's total of $2 billion. It's highly likely that the total volume of fines will increase further in 2019. Thus, the pressure to implement effective AML transaction monitoring has never been greater.

9. Getting to grips with increased regulatory focus on AML validation, optimization and quantitative analysis. For U.S. regulators, it is no longer enough to know that a firm has implemented an AML transaction monitoring solution. Regulators want proof that the software is proactively recognizing suspicious transactions and that this is leading to the right level of (SARs) being filed. They also want data that demonstrates how well a firm's case investigation program is working. Operational analytics can help firms provide evidence to regulators, auditors, and other stakeholders about the functioning of the AML transaction monitoring program.

In short, regulators today want to see financial services firms monitoring all transactions using a software solution, and they want evidence that AML compliance programs are working effectively. For firms, the need to monitor the operations of their programs is becoming increasingly necessary to help reduce costs and increase efficiency. AML analytics are now essential for those that wish to demonstrate leading practice to regulators, auditors, senior management, and other key stakeholders while keeping costs under control.

Ranjith Ramachandran is a consultant at ACA Telavance with over 11 years of experience in financial services and information technology. He has also held positions as a market research and data analyst intern at Synergy Marketing Strategy and a healthcare product development engineer at HCL Technologies.