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Financial Crime: The Importance of Effective Transaction Monitoring

Recap of Financial Crime Webcast by Ernst & Young
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Ernst & Young (EY) hosted a webcast on Tuesday February 26th titled Financial Crime which discussed the importance of effective Transaction Monitoring (TM) as well as TM system implementation.

If you were unable to listen to the webcast, we have summarised the key points from the webcast below.

EY Transaction Monitoring Survey

  • The EY TM survey found large Financial Institutions follow a common journey as the Anti-money laundering (AML) TM capability evolves over time. This journey typically has two big cost humps and a long cycle of efficiency, broken up into six stages: 1. Introducing and AML TM solution, 2. Stabilisation of an AML solution, 3. Improved coverage of AML risks, 4. Rationalisation, 5. Steady state, 6. High performance AML function.
  • Majority of financial institutions placed themselves at stage 3 which suggests that they are observing considerable increases in operational costs, until banks reach a steady state. Those who have more advanced capabilities face the challenge of bringing operational costs under control.

Australia’s Regulatory Environment

  • The Australian Transaction Reports and Analysis Centre (AUSTRAC) observed that some financial institutions used vague language in their TM policies and procedures. It was unclear to the regulator:
  1. How transactions were monitored, including frequency.
  2. How transactions would be assessed against indicators of suspicious activity.
  3. What types of transactions were considered suspicious and therefore reportable to the AUSTRAC as a suspicious matter report (SMR).
  • Some recent cases include:
  1. AUD 700M fine for a major bank on cash structuring related TM, in June 2018.
  2. The Financial Crime Regulator has doubled the headcount of its enforcement and compliance division full time equivalents and still recruiting.
  • Upcoming focus include:
  1. The AUSTRAC update regulation expected in June 2019.
  2. Major uplift across Financial Crimes is expected. No guidance notes yet published.

Key Challenges in Transaction Monitoring

  • Expectations are continuing to evolve as transactions are becoming more complex, there is increased operational oversight, and higher regulatory scrutiny. This is resulting in:
  1. Regulatory expectations – continuing to shift and increase, with complexities across and even within regions.
  2. Alert investigation – balancing volume with rule criteria
  3. Liaison with multiple functional areas – an effective program will need support and buy-in across business, ops, compliance, tech.
  4. Measuring efficiency and effectiveness – not just a reduction in false positives but also not jeopardising the true hits.
  5. Global consistency across regions – differing regulatory requirements data localisation constraints, organisational challenges.
  6. Effective tuning logic and content expertise – implement the right scenarios and adjust as needed based on the specific risks generated by the businesses, products and services.

Where to next for Financial Institutions?

  • Financial institutions need to get existing TM standards higher, including reducing false alerts and increasing the accuracy of suspicious alerts detection. They need to ensure they have:
  1. Well configured TM system
  2. Quality data
  3. Regular testing in place
  4. Well-trained staff
  • Looking forward financial institutions should focus on:
  1. Timely and effective detection of suspicious activity
  2. Ability to mitigate risks
  3. Strong tone from the top
  4. Usage of new technology and data analytics


AML requirements for lenders and intermediaries (who generally act as agents for lenders) are quite comprehensive and may involve some intensive Q&A depending on the circumstances of and the participants in a transaction. This is but one item of our many compliance obligations which we try to make as painless as possible for our clients. At the end of the day, much of what we do is for the protection of our clients.

If this article has sparked any questions, contact your Ledge Finance Executive directly, or contact us here.


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