Implement a Transaction Monitoring Program to strengthen the AML Efforts

Implement a Transaction Monitoring Program to strengthen the AML Efforts

As money laundering and terrorism financing is an ongoing process, so do regulated entities need to deploy Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) measures that function round-the-clock to detect the red flags. As per Singapore’s AML regulations, it is pertinent for the regulated entities to develop a comprehensive AML framework, including policies and procedures for identifying the financial crime risk, implementing adequate risk mitigation measures, and reporting the suspicions to the Suspicious Transaction Reporting office. This includes ongoing monitoring of the transaction and the customer’s profile, as that is the source where the potential vulnerabilities can be discovered.

In this article, we will discuss the transaction monitoring program, its significance in the overall AML structure, and the right approach to establish and implement the transaction monitoring program effectively.

Why is Transaction Monitoring a critical component of the AML Program?

Once the customers are onboarded after applying adequate Customer Due Diligence measures, the AML function does not end there. As the risk posed by the customer changes over time, the AML program must include measures that review the customer’s activities, identify these changes, and highlight the potential impact on the business. The regulated entities must have a robust transaction monitoring program as part of their AML framework to manage this.

As the name suggests, the Transaction Monitoring program systematically analyzes the large volume of customer transactions, their activities, and overall risk profile to detect the unusual patterns or inconsistencies that may indicate red flags associated with money laundering or terrorism financing.

When the customer’s transactions are monitored against the expected customer activities, the regulated entities can promptly detect suspicious activities and take timely action to prevent further business exploitation.

The AML program would be construed as complete only when the regulated entity has adopted an appropriate transaction monitoring system to detect and deter financial crime attempts, instilling the authorities’ confidence and the customer’s trust in the business.

What is an ideal approach to implementing a Transaction Monitoring Program effectively?

The effectiveness of the transaction monitoring program depends on how well the regulated entity has designed and implemented the same. The regulated entities may follow the below-mentioned steps to set up the transactions monitoring program systematically:

Understanding the business need for a Transaction Monitoring Program

The transaction monitoring program must be based on the entity’s risk exposure to the financial crime and the regulatory obligations imposed thereupon. Thus, the first step is to conduct the Enterprise-Wide Risk Assessment and determine the degree of risk each risk parameter poses to the business. The outcome of the risk assessment shall help the entity prioritize the resources and work out the scope of the monitoring program and the outcome expected in the context of different risk factors.

Transaction Monitoring Program to strengthen the AML Efforts

Moreover, considering the regulatory landscape will align the transaction monitoring program with applicable laws, enabling the entity to stay AML compliant.

The objective and scope of the transaction monitoring program must be well documented.

Thorough planning and designing of the Transaction Monitoring Program

Having worked out the need for a transaction monitoring program, the regulated entity must proceed with developing a program plan and design its implementation method. This stage involves prioritizing the risk areas and identifying and allocating the resources required. Here, the regulated entities would ponder upon the involvement of the human resources and the technology and tools required.

The entity must develop transaction monitoring policies and procedures, define the roles and responsibilities of the concerned personnel, integrate the program with the customer due diligence process, and other relevant aspects on which the program would rely for input data.

Implementing the proper rules, processes, and systems

Once the transaction monitoring plan and design are ready, the regulated entity must move ahead with its implementation. To begin with, the entity must identify and deploy the right technology and solutions capable of handling and processing a large volume of data in real-time, detecting discrepancies and suspicions, and promptly generating alerts.

The monitoring rules and logic must be mapped accurately in the system, aligned with the nature of the business’s risk exposure, the customer base the entity engages with, the customer’s risk profile, the nature of products and services offered, etc. This configuration of the monitoring rules must be followed by independent testing, possibly using the dummy data, to ensure that defined monitoring rules are working fine and would be able to detect the red flags when the system goes live.

The regulated entity must train the team on the software, and solutions must be deployed for transaction monitoring. The AML training should cover the rules mapped in the system, how to navigate it, how to handle the alerts triggered by the system, and its disposition and escalation. Only the relevant staff members are empowered; the developing transaction monitoring program and system would yield the expected outcome.

Periodically reviewing and updating the Transaction Monitoring Program

Designing and implementing the transaction monitoring program is not a one-time effort; instead, it’s an ongoing activity warranting periodic review of the program, controls, and systems to check its relevance and quality and making necessary updates, if required, in line with the business risk and emerging ML/FT typologies.

During the review, the system’s performance must be evaluated considering the number of alerts generated, the number of false alerts, how these alerts were investigated, how these alerts resulted in reporting the Suspicious Transaction Report with the authorities, etc. These performance metrics would assist the regulated entities in enhancing the monitoring rules, the accuracy of the alerts, and the program’s overall efficiency.

During these reviews, the regulated entity must make diligent efforts to overcome the following key challenges associated with the Transaction Monitoring Program:

Regulatory Challenges

The latest developments in the applicable regulations and laws must be tracked and analyzed for their impact on the monitoring program. The required changes must be included in the transaction monitoring policies and systems to ensure adherence to the recent regulated amendments, avoiding any non-compliance consequences.

Technological Challenges

The integration of the monitoring program with the existing systems must be checked to ensure that complete and accurate data is flowing for transaction monitoring. Data validation exercises must be conducted regularly to maintain the systems’ effectiveness and ensure that no suspicious transactions go undetected.

If required, the weaknesses in the system must be managed by deploying technological updates or, if required, investing in advanced solutions.

Operational Challenges

The monitoring rules and rationales must be reviewed regularly to ensure that the alerts generated by the system are relevant, reducing the wastage of time and resources on unnecessarily investigation the false alerts flagged by the system.

Further, there shall be periodic refresher training for the relevant team members around the transaction monitoring program and conducting preliminary investigations of the highlighted transactions. This will ensure that the team is aware of the enhancements made to the entity’s transaction monitoring program, enabling them to resolve the alerts in a timely manner.

Only when the transaction monitoring program is systemically designed and implemented; its objective of detecting the risk indicators and preventing financial crime can be achieved.

How can AML Singapore assist you in designing and implementing the Transaction Monitoring Program to foster the AML framework?

With our years of experience working on AML implementation across entities in different sectors and jurisdictions, AML Singapore can assist you with designing a robust AML Program, including the much-needed Transaction Monitoring Program. We understand your exposure to financial crime and overall business profile and assist in selecting the appropriate technology and software that helps you stay compliant with Singapore’s AML regulations and safeguard your business against money laundering and terrorism financing.

Combat terrorism financing and safeguard your business now!

Let’s begin.

About the Author

Pathik Shah


Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.