The top 5 transaction monitoring pitfalls and how to avoid them

Transaction monitoring is a fundamental part of detecting and preventing your business from being used to facilitate financial crime and terrorism financing. Regulators are increasing their scrutiny on Anti-Money Laundering (AML) control frameworks and the fines issued for failings are increasing year on year. Transaction Monitoring is a fundamental pillar of any good AML control framework, and you cannot afford to get it wrong.


Transaction monitoring success is critical for three main reasons:

  1. To detect and prevent financial crime effectively.
  2. To meet regulator and customer expectations.
  3. To clear alerts with efficiency without sacrificing quality.

When transaction monitoring is optimised, it should go unnoticed by your wider organisation and customer-base. However, if it goes wrong, all sorts of problems with large implications can be created. These include (but are not limited to) negative customer experience, regulatory scrutiny, and high team workloads to remediate any issues.

We set out below what we see as the five main pitfalls in transaction monitoring and how you can avoid them.


  1. No one ‘golden’ source of customer information

To effectively and efficiently clear alerts, it is necessary to quickly identify the relevant information you hold on the customer whose transaction has triggered the alert. You need confidence that your customer information is up to date, correct and does not conflict with what is found elsewhere in your organisation.

Firstly, it is a major red flag to any regulator if you possess the required customer data in your organisation to make an informed decision, yet are using old or incorrect information in your investigation (or worse still, unable to locate this information).

Secondly, searching for information dispersed across various files, sources and teams slows down the investigation process. This can generate doubts and frustrations, and lead to the wrong decisions being taken by your analysts. It is critical to have a clear ‘golden’ source you can quickly and confidently rely on.

Solution: Know Your Customer (KYC) registry

The creation and maintenance of a central KYC registry means that there is one ‘golden’ source of the truth. This reduces wasted time in tracking down customer information, as well as providing confidence that the information is correct and up to date. This drives better decision making and more efficient alert clearing.


  1. Re-doing the full KYC checks for each alert

Transaction Monitoring should directly address the risks that the transaction highlights. Teams which are low on experience (and confidence) often fall into the trap of completing more investigative work than they need to, as a way of covering their backs. It is important to “work smarter rather than harder” if your team is to be efficient in clearing high alert volumes.

The work required should be targeted at the risk highlighted by the scenario which has generated the alert. For example, if an alert has been generated because a company has transacted in an unexpected jurisdiction, it is sufficient to identify that this company has a legitimate business relationship in that country. There is no need to re-do the full KYC file.

Solution: A best-practice target operating model

Teams need to be upskilled, trained, and focussed on the alert clearing processes. Feedback processes, best practice guidance, training and team-culture are all critical in driving an efficient operation. A strong governance model is critical to high-performing transaction monitoring operations.


  1. Unnecessary alerts

As businesses grow, more and more alerts will be generated, resulting in ever increasing workloads for transaction monitoring teams. This can very easily escalate and become unmanageable. Any sustainable operation must take steps to ensure that workloads remain sustainable, and resources can be targeted in a risk-based way. The most frustrating thing for transaction monitoring teams is to spend time on pointless and unnecessary false positives. It is a poor use of resources and it must be a priority to continuously improve the efficiency of your operation.

Solution: An effective ‘good guys’ list process

‘Good guys’ lists are a sensible way of preventing repeat alerts on individuals and businesses who have previously been investigated by the transaction monitoring team. An effective ‘good guys’ list process will ensure that repeat alerts are not generated on counterparties whose behaviour is legitimate, yet still triggers alerts in the system. This is particularly relevant if a rules-based scenarios approach is being used, as it is difficult to configure the scenarios in a way which detects all crime without triggering alerts for legitimate activity.


  1. Unintelligent scenarios

The scenarios which generate alerts are fundamental to how organisations detect financial crime. If these scenarios are not optimised for your customer population and the risks faced by your organisation, not only will real financial crime go undetected, but there will be a significant number of false positives generated.

In the past, most transaction monitoring operations took a ‘rules-based’ approach. We are becoming ever more aware that one size does not fit all. A £10,000 transaction for one company may be a drop in the ocean, whereas for another this could be enough to generate suspicion of illicit activity.

Solution: Statistical/AI configured transaction monitoring scenario

Simple statistical techniques should be employed to compare customer behaviour to their observed historical activity, building a clearer image of what is considered normal or unusual for each customer. Rules-based scenarios are no longer good enough. Artificial intelligence and machine learning will no doubt be the future of best-practice transaction monitoring and it will be exciting to see how this develops over the coming years.


  1. Box-ticking culture

Compliance can sometimes feel like a tick-box exercise rather than a proactive and empowered part of an organisation. Fundamentally, transaction monitoring is crucial to stopping financial crime. It would not be excessive or disproportionate to say that good financial crime prevention can save lives as it directly puts a stop to the financing of terrorism and laundering of criminal funds. Preventing criminal activity should be a key motivator for transaction monitoring teams, and it can be easy to lose sight of this if your governance structure is not set up for success.

Solution: Ways of working and cultural change

It is important to get your team invested in the social and economic importance of their work and move away from compliance as a tick-box exercise. High performing team cultures have regular knowledge sharing events and engaging horizon scanning discussions about what they are seeing day-to-day on the ground. Transaction monitoring teams can fall into the trap of measuring their performance solely on alert clearing KPIs. Although these elements are important, there are no doubt unintended damaging consequences for a high-performing culture of compliance. By rewriting your performance management metrics to suitably incorporate risk, your team will respond to these incentive structures.


These five pitfalls all require careful consideration and there are no shortcuts to creating a high-performing transaction monitoring operating model. This can either be developed in-house or outsourced to a trusted partner, who can manage the day-to-day operations and allow companies to focus on key decisions and overall accountability. We at Be UK are here to help you optimise your transaction monitoring in an integrated and cost-efficient manner.


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If you have a query or would like to arrange an initial meeting to discuss how we can shape the future of your business, then get in touch and our team will get back to you shortly.

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