One of the most significant requirements in preventing money laundering is that all financial institutions comply with and develop a risk-based AML program against money laundering and terrorist financing risks.
A risk-based AML program includes Customer Risk Assessment, Customer Due Diligence, Enhanced Due Diligence, transaction monitoring, adverse media screenings, and various monitoring and screening operations.
Transaction monitoring systems generate warning alarms in case of any risk. With these alarms, companies can detect customers' money laundering and terrorist financing activities and take the necessary precautions against such risks. However, every alarm may not indicate money laundering. More specifically, transaction monitoring shows a high sensitivity to all unusual activities. This situation often causes alarms to be generated even in situations that do not pose any risk.
What Are False Positive Alarms?
AML Transaction monitoring is software that monitors financial transactions to identify potential money laundering practices. Transaction monitoring systems can increase a financial institution's ability to detect suspicious activity faster and more effectively. So, what is the aml transaction monitoring system? AML Transaction Monitoring is the most effective way to help the financial institution monitoring financial crimes such as fighting money laundering and detect money laundering suspicious transactions.
Transaction Monitoring has suspicious behavior detection parameters. In line with these parameters, it generates alarms for suspicious transactions and sends warnings to financial institutions. However, Transaction Monitoring may detect unsuspicious transactions as suspicious, and an alarm may be generated. Generating alarms for innocent transactions is called false positives.
For example, if the system encounters a customer transaction withdrawing money from more than one ATM in a day, it will detect it as suspicious activity and generate an alarm. However, this process can be a risk-free process.
What Does SAR Mean?
Suspicious Activity Report (SAR) is created when Transaction Monitoring detects high-risk behavior. Every customer with risky activity will be reviewed frequently. If the transaction that seems suspicious has repeated more than once, financial institutions may break the relationship with such customers. More than one SAR is created for such customers, which may be of interest to law enforcement. In this case, it will most likely cause law enforcement to form a subpoena for records and documents, and processes such as questioning for suspects will also be involved. This process will take longer and take time. If a SAR file is created for False Positive transactions created by Transaction Monitoring, financial institutions will both have to spend money and waste time.
Why Businesses Should Prevent False Positives?
Businesses are required to constitute a Suspicious Activity Report for every suspicious transaction. Therefore, false positives increase the suspicious activity report requirement by creating alarms for unsuspecting transactions. This situation causes a loss of time for businesses and prolongs the actual criminal activities' reporting period.
Although not guilty, no customer wants to be treated as if they were guilty. However, false positives generate alarms for innocent customers, leading to many negative customer experiences. Many businesses lose good customers because of false positives.
Reduce False Positives
Transaction Monitoring and Screening solutions require the processing and analysis of company data. To distinguish correct AML alerts, the data processed should be as simple and straightforward as possible. Therefore, companies that organize data based on specific customer information rather than under a single heading will greatly reduce false positives.
The transaction with different names is one of the main methods criminals use to prevent AML checks. Therefore, businesses must create customer profiles suitable for customer data and correctly implement these profiles' verification processes. Accordingly, businesses' failure to update customer data (such as name or residence change) may result in false-positive alarms.
AML regulations are updated annually. Businesses need to be aware of current AML regulations and establish their rules in line with current regulations. Otherwise, profiles and AML applications that are not created according to current regulations may cause false positive alarms. Also, institutions that do not comply with the regulations may be subject to various criminal sanctions.
How Sanction Scanner Helps to Reduce False Positives?
Sanction Scanner Transaction Monitoring Software offers businesses the option to write dynamic rules on a wide scale, from the best-known scenarios to customized scenarios. Moreover, businesses can create these rules and scenarios that best suit their needs without any coding knowledge. So businesses can focus on the right alarms and greatly reduce false positives.
However, name similarities can cause false positives to be generated. In this case, false-positive alarms will be inevitable for a customer with the same name as a criminal on the sanction list. Sanction Scanner allows searching by customer's date of birth, ID number, or passport number. In this way, customer scans are made with more distinctive information, and false-positive alarms caused by name similarities are largely prevented.