Per the latest research by the United Nations Office on Drugs and Crime (UNODC), between $800 billion and $2 trillion are laundered in one year. This is, alarmingly, 2-5% of the global GDP.

Consequently, the financial compliance landscape is evolving. Just an initial customer identity verification is not enough.

To meet regulatory requirements under the various KYC and AML (anti-money laundering) regulations and detect and eliminate chances of financial crime and fraud, it's imperative for businesses to thoroughly understand their customers' financial activities and invest in efficient transaction monitoring solutions.

Transaction monitoring is, in short, a continuous and active check on financial transactions in real time. However, it would be rather tedious to keep track of all transactions manually, especially if the volume and frequency of transactions are huge. Thus, it's important to invest in a high-quality digital transaction monitoring solution that can analyze data en masse, identify suspicious activities, and flag any transactions that could connect to money laundering, terrorism financing, corruption, or any other illegal activity.

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What Is a Transaction Monitoring Solution?

Transaction monitoring solutions, also known as transaction monitoring systems or transaction monitoring software (TMS for short), are a key part of the AML compliance handbook. A transaction monitoring tool is a piece of software that is responsible for ongoing, continuous activity that keeps a close eye in real time on all financial transactions going through a particular organization.

Financial institutions, in particular, take their transaction monitoring processes very seriously, but that doesn’t mean the need for it doesn’t apply to other businesses. Most businesses with a large volume of financial transactions need to invest in the best transaction monitoring tools to ensure proper transaction screening for any suspicious activity and to identify suspicious transactions right away.

Transactions that are out of the ordinary or that meet certain predetermined criteria are immediately flagged by such software. For example, if a sizable amount is deposited into an account where the account holder is not a resident of the country, this can be flagged as a suspicious transaction. Another example is if a customer deposits a cheque worth an unusually large amount, and right away withdraws cash via the ATM. Similarly, if one or both parties to a transaction are residing in countries flagged as high-risk, the transaction may be flagged as suspicious.

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Challenges to Transaction Monitoring

All financial institutions, including modern fintech firms and organizations like money exchanges, remittance firms, money transmitters, insurance companies, cryptocurrency companies or exchanges, brokerage houses, stock exchanges, and casinos, are required to monitor transactions as part of AML compliance. Transaction monitoring, however, is not free from challenges.

One big problem with TMS is the occurrence of false positives, which can lead to a massive waste of time and resources and cause factual inefficiencies. Transaction monitoring also often focuses only on the transaction at the account level, meaning it misses context and doesn’t focus on other information.

Furthermore, most transaction monitoring solutions are rule-based, meaning you input your rules into the system, and it takes actions based on the rules it’s been taught.

For example, if you want to flag transactions going to Russia as high risk or block them, the rule will be, “IF transaction to Russia, THEN trigger HIGH RISK or BLOCK.” Another example is if you want to flag multiple suspicious transactions to the same supplier, for which the rule will be, “IF transactions to the same supplier > 2 times per day, THEN trigger HIGH RISK.”

Having a rule-based system means that you need to keep making changes and updating the database according to the current landscape. For example, Russia may not have been a high-risk country in the past, but if it starts a war, it becomes one. Or suppose a new sanctions package is issued, or the anti-money laundering regulations change. This can be difficult because there are hundreds and thousands of rules to make sure the monitoring is efficient and you meet the AML transaction monitoring compliance requirements. Companies run a risk of getting repeated audits by compliance teams or being heavily fined simply for neglecting to update some of the many rules and processes in place.

Another challenge is knowing how to monitor transactions involving both types of currencies, fiat and crypto. Not all transaction monitoring solutions know how to deal with the latter because it’s a different system with its own set of rules.

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How Good Transaction Monitoring Software Solves These Challenges

The solution to rigid rule-based systems is artificial intelligence. Vespia is one of the few companies that knows its way around leveraging AI for transaction monitoring. Our AI learns from your rules, patterns, and decisions, and makes suggestions whenever something changes in the world. For instance, it will suggest how you can change the rules or update them to continue meeting your compliance requirements even when the overall landscape changes.

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The assimilation of AI also means that each part of the transaction monitoring process becomes more accurate, leading to fewer false flags.

Furthermore, a solution like Vespia’s will be able to monitor both fiat transactions as well as crypto transactions.

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How Transaction Monitoring Software Works

A transaction monitoring solution has built-in rules and criteria that you update, based on which the software inspects all data. This means that the software will track and monitor all incoming and outgoing financial transactions. In addition to basic information like account name and amount, it will also monitor device fingerprints, the source of funding, the velocity of the transaction, the size of current and prior withdrawals and deposits, and the IP quality.

Next, the software will detect suspicious transactions based on the rules you’ve set and take into account other variables, like unusual circumstances or the receiver or sender’s risk profile. All information, including the person’s geographical region, transaction history, and work industry, will be taken into account. Based on this information, the transaction monitoring tools will flag suspicious activity or block transactions that are particularly high-risk according to the transaction monitoring rules. Most risk and compliance teams strongly suggest being efficient with setting rules and criteria when using monitoring software.

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Key Features of a Transaction Monitoring System

Transaction monitoring systems usually have the following key features.

1. A holistic view of compliance management (i.e., covering multiple areas of the regulatory framework)
2. Real-time monitoring of all transactions
3. Efficient and accurate predictive analysis and pattern recognition
4. Fully automated processes
5. Timely alerts and notifications for all key use cases
6. Easy-to-use, efficient analytics tools
7. Comprehensive and timely reports
8. Flexibility and scalability
9. Complete data privacy
10. An audit trail

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7 Best Transaction Monitoring Tools

‍1. Vespia

An AI-powered transaction monitoring solution that automates all your AML rules with you – this tool offers you intelligent and real-time financial transaction monitoring and analysis using AI.

The software uses adaptive learning along with integrated rule-based or AI monitoring, which means it’s continuously evolving after learning from every transaction, leading to greater accuracy. You receive instant notifications in case of any suspicious or unusual activity. The tool also allows seamless integration with other existing compliance systems you may have in place.

Vespia offers a free trial and, with more features, a customizable paid plan, which you can upgrade to by reaching out to us via our website.

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2. SEON

SEON allows users to create AML rules that are designed to flag suspicious transactions from sanctioned countries through their IP addresses. They also provide velocity checks in case of sudden increased amounts or frequency in transactions. The transaction monitoring tool checks user identities against PEP, crime, sanctions, and other watchlists.

The free version offers 2 users, 10 custom rules, 200 monthly manual checks, 2 queries/second, and email support. However, a paid version (with a free trial available) starts from $599 per month, going up based on your requirements.

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3. Ondato

Ondato is a company that offers SaaS-based solutions for AML, KYB, and KYC. Their transaction monitoring (KYT) system offers a consolidated suite that they’ve created by partnering with several transaction monitoring solutions to bring you the best transaction monitoring features, all in one place. 

They have a few different pricing plans. The KYC plans are customizable and charged accordingly. KYB plans start from $618. A free demo is also available.

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4. Hawk:AI

Hawk:AI comes equipped with explainable artificial intelligence to monitor, screen, and analyze your customer risk rating. The monitoring tool helps you manage your risk without having to scale your team. Behavioral analytics paired with AI promptly flags any suspicious transactions or fraud.

A demo request for the transaction monitoring tool can be made on the Hawk:AI website. Just submit your info, and their team will reach out to you with pricing details.

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5. Salv

SALV provides a wide range of AML solutions, including their transaction monitoring tool that combines all your financial monitoring needs in one place. The tool monitors both customers and their transactions in real-time and also after the event. To make life easy, the platform comes with built-in configuration tools. Moreover, with their smart monitoring tools and criminal pattern identification, they’re trusted by several financial organizations.

You can reach out and easily book a demo through their website.

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6. Sumsub

Sumsub promises to boost your team’s efficiency by providing a one-stop solution to all your transaction monitoring needs. Your revenue is safeguarded as you prevent losses through Sumsub’s real-time monitoring and fraud detection. The tool is designed to help you stay fully AML-compliant.

A free tour of the transaction monitoring solution is included on the website, and you can reach out to their team for a customized plan and pricing as well.

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7. ComplyAdvantage

ComplyAdvantage offers you an efficient AI-powered transaction monitoring tool that comes with its library of rules covering all AML industry typologies. The platform uses a no-code rules builder that’s ideal for self-service and presents a simplified team performance review to make reporting more accessible. Moreover, you can scale up to billions of transactions. The transaction monitoring software claims to reduce false positives by 70%.

You can request a demo and reach out for a customized plan on their website.

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Choosing the Right Monitoring Platform

Once you have decided to go for a digital transaction monitoring tool, it’s important to pick out the right platform that best suits your business’s needs.

One of the biggest issues that is faced is the integration of rules for transaction monitoring. If you have your own rules already in place and you need to switch to a new software, how easy will it be to implement thousands of your rules into the new system? Or, if you’re just starting out and don’t have any rules set up yet, does the software provide you with any templates or example rules that you can use to get your system up and running?

Also, remember how we mentioned some example rules in the previous sections? It’s not that simple. Rules are not just in text form. You need to write proper computer code (such as in SQL or another language) and also make sure that each new code works together with other rules. Your chosen platform should make all this easy for you and your team.

Here are some other key points you should keep in mind when choosing the right monitoring platform.

• Performance and accuracy
• Customization options
• Ease of access and use
• Easy implementation
• Keeping up with constantly evolving regulations
• Availability of training and support staff
• Pricing
• Adoption of the latest technologies, e.g., use of AI, advanced processing capabilities, easy integration of modern tech with traditional systems

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Wrapping Up

Even after an initial KYC or KYB, businesses need to do their due diligence to flag suspicious transactions and fully analyze all transaction data. A good transaction monitoring tool can help prevent many kinds of financial crimes, including terrorist financing, tax evasion, money laundering, and sanctions violations.

Choosing a transaction monitoring solution that not only provides customizable options but also constantly updates itself according to the rapidly changing technological and regulatory landscapes is a necessary step toward meeting AML compliance.

Vespia’s AI transaction monitoring solution offers all that and more. Sign up now for a DEMO here.

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