Suspicious Transaction Reporting and its role in limiting AML (Anti Money Laundering) risk
Why AML compliance is the need of the hour
Over the past two years the FCA and PRA have issued some significant fines to regulated companies for both AML (Anti Money laundering) breaches and poor internal systems and processes which are there to ensure AML compliance.
This has come about as the result of several high-profile failures within regulated businesses and, as such, the focus is now turning onto all the banks, EMIs and PSPs, meaning that they are all coming under scrutiny regarding the technologies that they use to safeguard customer money and process payment legally.
In many cases, banks have simply sought to scale up their AML (Anti Money Laundering) process both at the onboarding and payment function levels, by deploying better AML and KYT / transaction monitoring solutions. This solves two parts of the problem, i.e. blocking the onboarding of a customer who may be under sanction or a PEP and blocking the payment or receipt of funds from a 3rd party who is under sanction / PEP. In this regard AML solutions can be seen to work well so long as they are correctly configured and operated.
Limitations of traditional AML assessment and reporting
Where the process falls down somewhat is where there are transactions occurring which are to recipients not on a sanction or block list, but where the transactions themselves might constitute fraud or money laundering.
Checks like these tend not to be in-flight, i.e. part of the payment process, and as is often seen on social media platforms, customers lose vast sums of money because their card or account becomes compromised. Criminals can make multiple payments to 3rd party accounts without being stopped, all because the AML trigger did not signal a potential risk.
Criminal activity if often carefully planned, with thoughtful and subtle means to bypass basic alerting algorithms, with transactions being spread out and obscured over a period of time, to present as being ‘authentic’ in nature.
In cases such as these, banks apply Suspicious Transaction Reporting (STR). This is a post-event analysis of payments and payment patterns and frequencies in order to identify where there is a type of behaviour that could indicate that money laundering or fraud is happening.
To achieve this, the bank must extract payment information and run it through pattern matching tools. This can be a complex and time-consuming process; hence it is typically a specific event that triggers the alarm, and the anti-fraud team swings into action. But investigatory capacity needs to be matched against transaction volumes, to enable timely investigation and regulatory compliance.
But, with powerful data driven tools now available on the market, it is possible to use the raw transaction data to drive pattern matching analysis to flag sequences of transactions that might constitute illegal activity.
Key benefits of Yexle’s AML (Anti Money Laundering)/CTF (Counter Terrorism Financing) assessment solution
Appian, the leading provider of process orchestration solutions to the financial services industry, in partnership with Yexle, have successfully delivered several STR solutions to leading financial services providers globally, with the powerful data fabric capabilities enabling the automation of transaction data to be captured and analysed.
In the event of the system identifying any form of trend, a case is automatically generated and presented to the fraud team to analyse. The validation process, although configurable to meet the specific needs of each customer, enables the agents to analyse the related transactions, match against additional data, automate checks, rules, and processing logic and then finally curate investigation narratives and reports.
This solution is the last line of defence for any bank to identify and stop fraud and money laundering, hence it is absolutely important as a tool that every financial services provider should have in their armoury.
Conclusion
In today's complex regulatory landscape, financial institutions must prioritise robust AML strategies to safeguard their operations and protect their reputation. By investing in advanced solutions like Yexle's AML/CTF solution, organisations can effectively identify and mitigate money laundering risks, ensuring compliance, and fostering trust with customers and regulators.
