A Review of the Effectiveness of Transaction Monitoring Controls

Key Challenges

SQA Consulting was acting as part of a skilled person team that was conducting a Section 166 review on a firm on behalf of the Financial Conduct Authority.

The requirement notice from the FCA required the skilled person to review the effectiveness of various key financial crime controls, including Transaction Monitoring (TM).

The section 166 requirement notice required:

  •  An assessment of:
    • the overall effectiveness of the TM controls
    • the process for adding and reviewing rules to the TM system
    • investigation procedures for TM alerts
  • Recommendations for how the firm could improve effectiveness.

SQA PROposed solution

SQA Consulting held interviews & walkthroughs with the TM team & reviewed relevant documentation. A sample of alerts was reviewed to determine how the firm would formulate decisions on alerts & whether they would be escalated & reported where appropriate.

solution benefits

The report contained observations on TM strengths & weakness, with root cause analysis & recommendations for management.

In particular, recommendations were made to include more dynamic rules such as:

  • Using proportional values (e.g. customers average monthly spend increased by x% compared to average) rather than absolute values
  • Identification of where a customer has a series of transactions just below a threshold, potentially indicating deliberate circumvention of the firm’s controls.

A document such as this is exactly what a regulator is looking for, demonstrating that a thorough investigation has been conducted, with recommendations addressing any weaknesses.

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