Transaction Monitoring is the ongoing process of reviewing and analysing customer transactions to detect patterns or individual transactions that may be indicative of money laundering, terrorist financing, or other financial crime. It is a core component of Customer Due Diligence (CDD). Transaction monitoring can be carried out manually, but in practice most financial institutions use automated systems that apply rules and statistical models to flag unusual activity — for example, transactions that are unusually large, transactions to or from high-risk jurisdictions, or patterns of structuring (breaking up large amounts into smaller transactions to evade reporting thresholds).
Effective transaction monitoring is not only about setting alerts and waiting for the system to flag suspicious transactions. Regulatory expectations require that businesses regularly review and tune their transaction monitoring systems, investigate alerts in a timely and thorough manner, and escalate suspicious findings appropriately through the SAR process. Regulators have levied significant fines against institutions where transaction monitoring systems were found to be inadequate, poorly tuned, or not properly resourced — treating this as a serious compliance failure.
