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Are the old ways of transaction monitoring dead?

Author

Listed:
  • Gilson, Carrie

    (Senior Vice President, Director of Financial Intelligence Unit, U.S. Bank, USA)

Abstract

Financial institutions continue to face the challenge of demonstrating a comprehensive anti-money laundering (AML) transaction monitoring programme that is designed to detect, and aligns with, relevant Federal Financial Institutions Examinations Council (FFIEC) red flags without explicit, consistent confirmation on whether the escalations (ie Suspicious Activity Report [SAR] filings) are correct or valuable. Historically, this led most banks to adopt the use of typology-based if/then rules, resulting in a significant volume of alerts to be reviewed and dispositioned, with only a small portion being identified as potentially suspicious. While machine learning models are touted as an obvious fix to this problem, many banks may find such solutions to be far too expensive, complex and/or resource intensive. In order to answer the question, ‘are the old ways of transaction monitoring dead?’, this paper offers and evaluates various practical solutions, ranging from simple to sophisticated, to reduce false positive alerts generated by traditional AML transaction monitoring applications.

Suggested Citation

  • Gilson, Carrie, 2024. "Are the old ways of transaction monitoring dead?," Journal of Financial Compliance, Henry Stewart Publications, vol. 8(2), pages 102-111, December.
    • Handle: RePEc:aza:jfc000:y:2024:v:8:i:2:p:102-111
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    More about this item

    Keywords

    transaction monitoring; machine learning; suspicious activity; false positive; rules-based; prioritisation; data quality;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K2 - Law and Economics - - Regulation and Business Law

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