Why is transaction monitoring key over and above onboarding checks?

Transaction monitoring is key over and above onboarding checks because it helps financial institutions detect and respond to suspicious activity in real-time. Onboarding checks, such as customer identification and due diligence, are important for identifying and mitigating money laundering risks when a new customer is first onboarded. However, these checks only provide a snapshot of a customer’s activity at a specific point in time.

Transaction monitoring, on the other hand, allows financial institutions to continuously monitor a customer’s activity over time. This means that if a customer’s behaviour changes or they start engaging in suspicious activity, the financial institution can quickly detect and respond to this. For example, if a customer who previously only made small transactions starts engaging in large transfers, this could be flagged as suspicious activity and in turn be investigated.

Additionally, transaction monitoring allows financial institutions to detect money laundering schemes that may not be immediately apparent during onboarding checks. For example, it can help detect “structuring,” which is the practice of making multiple small transactions to avoid triggering a reporting threshold, or “layering,” which is the process of moving funds through multiple bank accounts to conceal the origin of the funds. 

Overall, transaction monitoring is a crucial component of a comprehensive anti-money laundering (AML) compliance program as it allows financial institutions to continuously monitor customers’ activities and detect suspicious behaviour that may not be apparent during onboarding checks.