Transaction Monitoring (TM) is a core tool in the ongoing fight against financial crime and is critical to ensuring AML obligations are fully met by financial institutions. Getting it wrong can be very costly both in terms of regulatory fines and for your reputation.

“There is little record of the Bank ever having conducted analysis to determine whether its number of monthly alerts was appropriate to actual risk and the number and nature of transactions facilitated.”  $110m FINCEN USA 2010

“AML surveillance system did not receive critical data from several systems” $10m FINRA USA 2018

Understaffed”  $15m FINRA USA 2019

“……..absence of an appropriate IT infrastructure to support the KYC process and AML transaction monitoring” £163m FCA UK 2017

Whether you are implementing a new TM programme or you have a more mature TM environment, ongoing assurance testing, coupled with rule tuning and rule enhancement, is essential to align your Transaction Monitoring programme with regulatory expectations.

Tm1 SQA can provide a full end to end review of your TM programme or more tailored reviews focused on your current requirements, such as a dedicated rule review. The SQA TM Assurance Services will provide you with confidence in your TM programme and ensure you continue to get sound return from your investment.

SQA Approach

  • Analysis and investigation phase will include discussions, workshops and review of available TM related materials for example rule specifications, terms of reference for TM related steering/working groups etc
  • SQA in house tools enable creation of test data rapidly which is compatible for testing on your TM system
  • Ongoing communications throughout the process will ensure there are no significant issues or observations contained within the final report that have not already been raised
  • SQA expertise ensures all aspects of the TM programme will be assessed.  Scope can be managed to focus on specific aspects as required, for example rule effectiveness and coverage only  
  • A detailed report containing comprehensive observations will be provided on completion – empowering the client to make necessary improvements to their TM capability

SQA Methodology

RISK ASSESSMENT

Risk Assess the automated TM system and supporting processes currently in place.  This stage will provide a clear view of the overall TM landscape and how robust the various controls and processes are. It will include:

  • A detailed assessment of the TM system and the various controls and processes in place to support the end to end activity from rule creation to alert generation through to suspicious activity reporting
  • The SQA Maturity assessment will also be completed which indicates how your approach to TM is aligned with leaders and beginners within the field of TM​​

EFFECTIVENESS AND EFFICIENCY TESTING

An effective TM system will identify suspicious transactions and generate alerts to highlight these suspicions. 

An efficient system will generate reasonable volumes of alerts which represent real suspicions i.e. low volume of false positives.

This stage will look to:

  • Confirm the rules are working as expected 
  • Determine how effective the rules are  
  • Test the efficiency rate of the rules, what % of false positives are they generating
  • Provide recommendations for Tuning thresholds for the various rules

RULES COVERAGE & BENCHMARKING

This step is critical in ensuring that potential risks are being mitigated through effective use of TM rules.  This stage will include:

  • Benchmarking the rules against other FI and SQA Minimum Standard
  • Assessment of the rules in line with the internal Risk Assessment
  • Identification of potential gaps in rules coverage

DATA VALIDATION

If the data is inaccurate, incomplete or incorrectly mapped the system is inherently unreliable.

This testing will aim to prove that:

  • the right data is being used by the system
  • the right data is getting to the system
  • the system can manage problem data e.g. unknown data types
  • any changes in the data flows would be identified and flagged to appropriate persons

SQA Consulting can provide you with assistance in setting up your TM infrastructure from the implementation of the system, tuning rules right through to setting up the governance structures, processes and procedures, MI and ongoing assurance. Please contact us to find out more about our Transaction Monitoring services.

 

 

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