How to evidence transaction monitoring in your AML
Director and Founder of AMLCC and AMLCC Consult
Transaction monitoring is built into most countries’ anti-money laundering, counter-terrorist financing and counter-proliferation financing frameworks because it’s recommended by FATF in its 40 Recommendations.
Transaction monitoring is also something you probably already do. As with many regulated professional firms, it’s instinctive to ask questions about transactions when something seems out of the ordinary.
- Does the nature, value or frequency of a transaction fit with your client’s stated business?
- Does it fit with their risk profile?
- Is it aligned with the purpose of the relationship you established at the start?
- Is this transaction consistent with what you know about them?
But while those questions remain in your head, there’s no evidence for inspectors to see you’ve considered the risks and come to a decision on each transaction.
The challenge of evidencing transaction monitoring
FATF Recommendation 10 requires regulated firms to conduct ongoing due diligence on business relationships, including scrutiny of transactions to ensure they are consistent with the firm’s knowledge of the customer and their risk profile.
Supervisors want to see a documented record of the transaction monitoring your business has conducted, along with the judgements your staff made as a result. This needs to include what action, if any, was taken.
For example, if one of your client’s transactions triggered a review, what did that review find? If nothing unusual was identified, how was that conclusion reached?
The challenge for many businesses is that monitoring often happens informally. One of your team might notice something, mention it to a colleague, decide it’s fine and move on. Should a supervisor then pick up that file, there’s no record of that person’s reasoning.
It can also be a challenge where a transaction involves multiple parties: a buyer and seller, a borrower and lender, or a company and its directors. Monitoring the transaction means you need to understand the combined risk presented by everyone involved, not just your own client.
AMLCC’s client linking feature is built specifically to connect the dots between parties in a transaction.
It allows you to link all clients involved in a transaction, view the combined risk they present in a single report, and produce a supervisor-ready record showing that you’ve assessed and monitored every party.
What good evidence of transaction monitoring looks like
1. It’s made as the decisions are taking place
Records that are made at the time of a review are usually more detailed than records reconstructed afterwards. If something prompts a review, your team need to know that their records should contain a running commentary of their actions and reasoning.
2. It’s specific
A brief statement that a client has been monitored gives a supervisor very little evidence. Instead your team should be answering questions as they go:
- What was reviewed?
- When was it reviewed?
- What prompted the review?
- What was found?
- What was decided?
3. It covers all parties in a transaction
Where a transaction involves multiple parties, your evidence of transaction monitoring needs to give the full picture. If you’re acting on a property transaction, for example, the risk profile of every party your business is dealing with needs to be considered.
4. It’s proportionate to risk
Higher-risk clients and transactions could need additional transaction monitoring. Treating every client identically regardless of risk is out of sync with the risk-based approach and could mean your resources are not being used in the most effective way.
5. It connects to your decisions
If your transaction monitoring has spotted something unusual, you need to record your actions and decisions. This is required even if you decide not to progress an internal report to law enforcement.
Linking clients and transactions
When a supervisor reviews evidence of your transaction monitoring, they are looking for evidence that it’s risk-based, effective and documented. They want to see that you understand your clients well enough to recognise when something is suspicious and that you have a process for what to do next.
AMLCC gives regulated firms the tools for you evidence this and more, with structured client risk assessments, linked transaction records, ongoing monitoring prompts and supervisor-ready reports, all in one place.
What others have said
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