False Positives in AML Transaction Monitoring


It has ever been more important for companies to adhere to strict AML compliance rules. Not only is there a heavy price to pay, but any mishaps can hinder the company’s operation making it less profitable. 

Many companies are turning towards technology based solutions to help them keep abreast of their AML Compliance responsibilities. 

So, what are Positive false alarms?

AML Transaction monitoring software, such as ComplyRadar, helps companies to monitor their financial transactions. ComplyRadar for instance, can help companies to identify potential money laundering activities alerting personnel to take action quickly. 

However, not all alerts are cause for concern. Sometimes, AML Transaction Monitoring Software creates an alert which we call a False Positive Alarm. When this happens, it is recommended that a human intervenes to review the alert. Suspicious Activity Report (SAR) files are generated for these alerts, but creating a SAR report for False Positive Alarms is unnecessary, so a False Positive alert is an inefficient alert for financial institutions.

So, for instance, John withdraws the same amount of cash at the same or different branches every day, a traditional transaction monitoring solution will detect this and alert the financial institutions accordingly. While AML Transaction Software may view this as potentially suspicious behaviour, it may not be so. This is an example of how a False Positive Alert happens.ComplyRadar through the use of intelligent machine learning algorithms and behavioural analytics dramatically reduces alerts and false positives allowing the business to focus on more pressing issues.

If high-risk behaviour occurs in these activities, a SAR file will be created for this customer.

What Does SAR Mean?

A Suspicious Activity Report (SAR) is created when transaction monitoring detects high-risk behaviour. Customers who have been identified to partake in risky activity on a continual basis, will be reviewed often. If the customer continues to be flagged, financial institutions may actually end the working relationship with that customer to avoid any further risk. 

Can False Positive Alarms Be Avoided?

In short no, however the number of false positives with the use of ComplyRadar can be kept to a minimum. Essentially transaction Monitoring software has to be as sensitive as it is to ensure that genuine suspicious behavior is detected and acted upon.  Transaction monitoring relies on human behaviour, which is complex in itself. 

Let’s take a look at an example. Imagine several different individuals process  €15,000 cash withdrawals on the same day. Based on the rules setup these transactions may be flagged as suspicious as the exact same amount is being withdrawn by several different people on the same day.   

But since only one of those customers are suspicious, the rest are flagged as False Positives. 

Can False Positivity Alarms Be Reduced?

The best way for Financial Institutions to potentially reduce the amount of False Positive Alarms, is to look at the transactions from a holistic or behavioural outlook.

All pieces of a puzzle must be identified and taken into account to identify suspicious activity. Financial institutions reduce the number of alerts generated by transaction Monitoring software by implementing risk-based monitoring. So, when machine learning and behavioural analytics are implemented correctly; it can assist businesses by reducing these challenges for AML teams. False Positive Alarms can be reduced by creating a customer risk profile and alert risk scoring. 

Contact us to find out how ComplyRadar can help you to keep on top of your AML Compliance transactions. 

Share this article