There is a little difference between “Best” and “Perfect.” Although a bank or any financial platform may be said to be substantially superior to its competitors in the market, perfection is unattainable. Many worldwide financial entities rely on Know Your Transaction (KYT) authentication when controlling and monitoring money transfer activities.
Companies use a transaction monitoring system while onboarding any client. It thoroughly examines client withdrawal and transfer procedures to verify their legitimacy. Not only this, it also ensures the relevant financial institution’s adherence to AML (Anti Money Laundering) legislation.
A Brief Overview of Transaction Monitoring System:
Based on KYC authentication and AML checking outcomes, the transaction monitoring system is provided with appropriate threshold limitations for different customers.
The financial institution assigns a specific risk assessment to each client profile after the customer identification process. The software uses AI-powered technologies to determine every transaction. Nevertheless, the everyday threshold limit for an account is 10,000 dollars per US legislation. The transaction monitoring process flags a specific funds transfer activity based on the risk evaluation and the preliminary figures provided by the account owner.
When a financial institution such as a bank opens an account, the customer must provide details. It includes the amount they would deposit annually and the number of withdrawals during that time. The amount numbers are also verified. It enables the KYC transaction system to quickly detect transactions that cross specified thresholds and provide the relevant information to the authorities.
Assuming that a customer mentions transferring $200,000 annually into their account and that there will be 20 transfers per year, the average number of each transfer will be about $10,000. The transactions that are significantly more necessary than the calculated amount will be highlighted by the KYT compliance method.
Transaction Monitoring System – Preventing Money Laundering:
AML in the UK
The transaction monitoring process is a continuously operating method in the AML screening of high-risk customers. A financial institution must adhere to various rules in the UK to prevent money laundering and other crimes. According to the rules, clients who have settled overseas or have a background in the government must undergo EDD (Enhanced Due Diligence) procedures.
Account owners who have exceeded the threshold restrictions are subject to KYT validation. Financial institutions are failing to adhere to all of the established requirements. In the UK, billions of dollars are wasted annually on money laundering activities.
In such a critical situation, a firm can not overlook the necessity of rigorous KYC transaction verification. Considering this, the parliamentarians have written to PM Boris Johnson. They urged him to support ratifying stricter money laundering regulations to prevent such offenses.
AML Laws of the US
Transaction monitoring in money laundering is a regulatory requirement to flag transfers over $10,000. The transactions should be reported to FinCEN in-depth as a SAR (Suspicious Activity Report) of the customer’s account. Each statement should be kept together for a minimum of five years.
Implications of not Performing KYT Compliance:
The transaction tracking system used in AML account testing informs the financial institution of any suspicious shift patterns in the money transfers. A company must pay fines if it is guilty of inadequate KYT validation and AML screenings. In addition to paying heavy penalties due to their shortcomings, they risk losing market shares. A temporary or even permanent prohibition from participating in certain activities may be one of the consequences the corporation must deal with. The government may forbid the company from doing business with foreign residents. It should also limit its offerings, providing other businesses with a significant competitive advantage.
The transaction monitoring system offers early recognition of the potential for money laundering. It does so by checking transactions that exceed the set limit and carrying out regular due diligence procedures. The involved financial entity may freeze the payments if the customer’s justifications and supporting documentation need to be revised. The following action is promptly reporting to the appropriate financial watchdog to avoid unfavorable outcomes. Thus, KYT verification provides all financial sectors with greater security. Not only this, but it also makes them compliant with AML regulations, protecting them from paying hefty fines. Moreover, the KYT system ensures a more significant customer experience and builds a positive brand image. Thus, transaction monitoring services are an excellent bet for all banks and financial sectors to keep fraudsters away.