How do financial institutions prevent money laundering and terrorist financing? That is the responsibility of their Anti-Money Laundering, or AML programs by using Ongoing Monitoring.
The FATF states that efficient anti-money laundering protocols are essential to the integrity of the financial system’s security.
Effective AML measures are acutely in need today with a projected global cost of financial crime standing at US$ 4.19 trillion by 2024.
Such measures need regular Ongoing monitoring. One must check the client’s behavior to detect possible risks all the time. Monitoring is not a one time check process.
Reviewing the transactions, checking clients against different sanctions lists, and adjusting risk profiles are all ongoing processes.
Regular evaluation has enhanced the ability of financial institutions to discover forms of malicious activities and respond to criminal behavior efficiently.
This article will discuss the ongoing monitoring within AML, which comprises its core components and role in the discovery of financial fraud.
What is Ongoing Monitoring in AML?
Ongoing monitoring in AML describes the periodic review of customers’ activities and transactions to identify illegal ones.
Unlike an initial screening, AML continuous ongoing monitoring. It ensures that the customer activities do not deviate from their profile as well as business objectives.
The Financial Crimes Enforcement Network (FinCEN) reports that 90% of SARs find roots in ongoing monitoring. Here are the core elements of ongoing AML monitoring:
Transaction Monitoring
This ongoing process checks the transactions of customers against their known business patterns. It aims to identify suspicious patterns that might be linked to likely financial crime.
Studies indicate that 70% of actual fraud discovery occurs through transaction monitoring.
Firms can check millions of transactions identify red flags arising therefrom, and flag the risk. so that it doesn’t become lost in money laundering and fraud, among others.
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Sanctions List Screening
Customers are regularly screened against global sanction lists for any ties to illegal activities. Ongoing compliance monitoring helps businesses in maintaining compliance with the regulations.
Sanctions screening is continuously done, which updates the businesses with the sanctions that keep changing.
According to the U.S. Treasury Department, there was a 45% increase in enforcement actions in sanctions last year. It indicates that compliance should be maintained to avoid legal penalties.
Politically Exposed Persons (PEP) Checks
Regular checks will identify whether customer associated individuals are politically exposed or not. So, the monitoring standards are to be applied for such an account.
The determination of PEP status does indeed elevate the risk profile of a client considerably, and therefore entails much more stringent observation of their transactions.
As the World Bank points out, it is 10 times more probable that a PEP can be corrupt as compared to a non-PEP.
Adverse Media Monitoring
The process tracks media sources to detect all adverse information about a customer and notifies business of potential risks that may lead to non-compliance.
Businesses find risk, which can be hidden-never materializing, with adverse media monitoring. According to research, 60% of banks suffer reputational damage due to unmonitored adverse media. This therefore makes this component important.
Ultimate Beneficial Ownership (UBO) Monitoring
Monitoring Requirements under AML Ensure the owner of funds or businesses is consistent and legitimate through an ongoing monitoring process. This will prevent illegal financial activity from being conducted.
The Financial Action Task Force has identified that 40% of money laundering cases feature complex structures for corporate clients.
Keeping watchful eyes on beneficial ownership will help identify who is in control of those assets.
Why is Ongoing Monitoring Important in AML Programs?
Continuous risk monitoring is the lifeblood of any AML program as it enables organizations to stay ahead of the curve of perpetually changing risks. Here’s why:
Emerging Risks Identification
They may not start at the financial institution involved in illegal activity but could later on do so. Ongoing risk monitoring would identify such emerging risks.
In start of 2024, 80% of financial crimes are precipitated by persons who appeared legitimate at first.
Detecting Sophisticated Financial Crime
Effective criminals may be able to manage their way to prevent becoming noticed by the first round of screening, they can be caught over time with continued monitoring.
Red flags may be found by going over transactions and updating client profiles. Long-term monitoring has been shown in studies to have a 50% lower incidence of undetected financial crime.
Regulatory Compliance Assurance
This check is meant to ensure that financial institutions are strictly compliant with regulations on time.
With constant monitoring of customer activities, businesses help avoid penalties or legal actions against the institution.
In a recent report, it was recorded that above $10 billion in AML-related violations were charged to financial institutions for 2022.
As a result, it may be emphasized that this institution has a robust process in place for monitoring.
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