Transaction screening is an integral part of anti-money laundering (AML) protocols, which involves monitoring consumers’ transactions to detect any red flags or suspicious activity. The process involves customer identification, commonly known as know your customer (KYC), and thorough screening of transactions.
Transaction Screening Process
Transaction screening involves the identification and investigation of all transaction elements. It covers the people involved, the nature and goals of the transaction, and the funding source. The manual process of transaction monitoring is time-consuming and expensive. However, companies now leverage automated software to monitor vast volumes of transactional data. The data is cross-checked against global sanction lists, and the system is regularly updated to comply with the latest regulatory requirements. Following steps explain the framework of transaction screening:
- Integrate customer and payment data into the system to get insights.
- Review and analyze data integrated into the system to identify any anomalies.
- Verify customer information against sanction lists, politically exposed persons (PEPs), watchlist, and all blacklists displayed by institutions.
- Observe and match transaction information with the information provided during customer onboarding to find consistency.
- Identify all red flags and unusual behavior before processing or holding payments.
Challenges in Transaction Screening
Despite its numerous benefits, transaction screening comes with various challenges. An inefficient and costly transaction screening system can inadvertently create opportunities for criminals to exploit.
Varying Regulatory Requirements
Regulatory requirements change regularly to reflect the needs of modern crimes, so companies’ transaction screening systems must be updated to meet the needs and requirements.
Ongoing Maintenance And Updates
The model and data feeds in the transaction screening system should be continually updated to keep up with the cutting-edge technology that criminals employ to avoid fraud detection.
Data Quality
Monitoring transactions depends on accurate and comprehensive data to monitor and detect suspicious activities effectively. The result will not be reliable if the data is inconsistent and inaccurate.
Resource Limitation
Smaller financial institutions may lack resources in terms of budgets and technology. Implementing robust transaction screening requires a large budget, advanced technologies, and skilled personnel.
False Positives
Transaction screening systems sometimes generate false positive alerts when a legitimate transaction or real customer is flagged as suspicious. The solution is to upgrade the system or do a manual review, which increases operational costs.
Volume And Velocity
Transaction screening systems handle a large amount of data daily, and the speed at which transactions occur is overwhelming. The transaction screening system must be good enough to handle large transactions efficiently and quickly.
Benefits of Transaction Screening
The payment screening process is used to stop financial crimes in their tracks. There are many benefits to transaction screening, some of which are described below:
Meeting Regulatory Requirements
Transaction screening helps the financial institution comply with regulatory requirements, especially in highly regulated sectors such as banks, insurance, and finance. Financial institutions must comply with anti-money laundering (AML), counter-terrorism financing (CFT), and know-your-customer (KYC) regulations.
Operational Efficiency
Transaction screening with automated technologies improves operational efficiency and streamlines processes. By automating the system, transaction screening analyzes large volumes quickly and efficiently, removing manual review and human error.
Identify Financial Crimes
Transaction screening helps financial institutions detect criminal activity in its early stages. Moreover, it is used in customer onboarding and monitors customer transactions throughout the process. The customer’s behavior remains consistent over a period of time. This way, suspicious transaction monitoring detects unusual behavior and raises a red flag.
Reputation Management
Financial institutions can establish an excellent track record in the industry by implementing effective transaction screening procedures. Sometimes, financial institutions unintentionally facilitate customers’ involvement in illicit activities. Building trust between customers and financial institutions is facilitated by preventing illicit activity and controlling risk.
Data Management
Another benefit of using transaction screening is that it enhances data management, which plays a crucial role in understanding consumer behavior, market trends, and risk patterns.
An effective transaction monitoring system prevents data breaches by criminals. It aids in data monitoring, screening, and analysis to make wise judgments.
Leverage Transaction Screening To Avoid Fraud
Criminals use advanced methods to protect themselves from fraud detection systems. Financial institutions must comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations to safeguard company interests against illicit activities. Transaction screening monitors the whole process, detects anomalies at early stages, and identifies risks associated with each customer.
Transaction screening gives a clear view of the transaction process when combined with transaction monitoring. And in this manner, it helps financial institutions make good decisions.
In conclusion, transaction screening is essential to financial institutions’ operations to prevent financial crimes and save their reputation. It helps comply with anti-money laundering (AML) and other legal regulations and identify and mitigate money laundering as required in anti-money laundering (AML) rules.
