Fsa Aml Systems

Financial Services Authority
Automated
Anti-Money Laundering
Transaction Monitoring
Systems
July
2007
®®®®®®®®®®
®®®®®®®®®®
Introduction
1. The draft Money Laundering Regulations (implementing the 3rd Money Laundering
Directive) will be laid before Parliament in the coming weeks. The regulations will
make transaction monitoring (TM) compulsory. More specifically, firms will have to
conduct ongoing monitoring of a business relationship, focusing both on scrutinising
transactions and keeping the documentation and customer information up-to-date.
2. This should not foster major changes in firms' practice, as it puts into law what firms
are already doing. We recently conducted some work to look at how firms use
automated TM systems. The note below is to be read as feedback on good practice,
which firms may find helpful to ensure compliance with the new Money Laundering
Regulations once they come into force.
STATEMENT OF GOOD PRACTICE

3. Depending on the nature and scale of a firm's business activities, automated AML TM
systems may be an important component of an effective overall AML control
environment. This is consistent with the best practice recommendations of the 2006
JMLSG Guidance Notes.
Methodologies
4. TM systems use profiling and/or rules-based monitoring methods.
5. Profiling identifies unusual patterns of customer activity by applying statistical

modelling techniques. These compare current patterns of activity to historical activity
for that customer or peer group.
6. Rules-based monitoring compares customer activity to fixed pre-set thresholds or

patterns to determine if it is unusual.
Development and Implementation

7. The following factors are commonly cited as being important to a successful TM
system development and implementation:
• A clear understanding of what the system will deliver and what constraints will be
imposed by the limitations of the available data (including any issues arising from
data cleanliness or legacy systems).
• Consideration of whether the vendor has the skills, resources and ability to deliver
the promised service and provide adequate ongoing support.
• Maintenance of good working relations with the vendor, e.g. when collaborating to
agree detailed system configuration.
AML Transaction Monitoring Sytems Pa g e 1

®®®®®®®®®®
• Use of recommended hardware, not necessarily a firm's own standard, to reduce

processing problems, or otherwise finding a solution that is a good fit with a firm's
existing infrastructure.
• A full understanding of the data being entered into the system and of the business's
requirements.
• Regular housekeeping and database maintenance (operational resilience is vital to

ensure that queries do not bank up).
• Careful consideration of the risks of commissioning a bespoke vendor system,

which may be incompatible with future standard product upgrades.
• Continued allocation of sufficient resources to ensuring manual internal suspicion

reporting is effective, as TM can supplement, but not replace, human awareness in
day-to-day business.
Effectiveness
8. To have an effective TM system, we think firms should:
• Analyse system performance at a sufficiently detailed level, for example on a rule-

by-rule basis, to understand the real underlying drivers of the performance results.
• Set systems so they do not generate fewer alerts simply to improve performance
statistics. There is a risk of 'artificially' increasing the proportion of alerts that are
ultimately reported as suspicious activity reports without generating an
improvement in the quality and quantity of the alerts being generated.
• Deploy analytical tools to identify suspicious activity that is currently not being
flagged by existing rules or profile-based monitoring.
• Allocate adequate resources to analysing and assessing system performance, in

particular to define how success is measured and produce robust objective data to
analyse performance against these measures.
• Consistently monitor from one period to another, rather than on an intermittent

basis, to ensure that performance data is not distorted by, for example, ad hoc
decisions to run particular rules at different times.
• Measure performance as far as possible against like-for-like comparators, e.g. peers

operating in similar markets and using similar profiling and rules.
Oversight
9. Senior management should be in a position to monitor the performance of TM
systems, particularly at firms that are experiencing operational or performance issues
with their systems, so that issues are resolved in a timely fashion.
Pa g e 2 AML Transaction Monitoring Sytems

®®®®®®®®®®
10. Close involvement of the project management process by major business unit stakeholders
and IT departments is an important component of successful system implementation.
Reporting & Review

11. There should be a clear allocation of responsibilities for reviewing, investigating and
reporting details of alerts generated by TM systems. Those responsible for this work
should have appropriate levels of skill and be subject to effective operational control
and quality assurance processes.
AML Transaction Monitoring Sytems Pa g e 3

The Financial Services Authority
25 The North Colonnade Canary Wharf London E14 5HS
Telephone: +44 (0)20 7066 1000 Fax: +44 (0)20 7066 1099
Website: http://www.fsa.gov.uk
Registered as a Limited Company in England and Wales No. 1920623. Registered Office as above.
®®®®®®®®®®

Fsa Aml Systems

Uploaded by

Copyright:

Available Formats

Fsa Aml Systems

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fsa Aml Systems

Uploaded by

Copyright:

Available Formats

Financial Services Authority

STATEMENT OF GOOD PRACTICE

5. Profiling identifies unusual patterns of customer activity by applying statistical

6. Rules-based monitoring compares customer activity to fixed pre-set thresholds or

Development and Implementation

AML Transaction Monitoring Sytems Pa g e 1

• Use of recommended hardware, not necessarily a firm's own standard, to reduce

• Regular housekeeping and database maintenance (operational resilience is vital to

• Careful consideration of the risks of commissioning a bespoke vendor system,

• Continued allocation of sufficient resources to ensuring manual internal suspicion

• Analyse system performance at a sufficiently detailed level, for example on a rule-

• Allocate adequate resources to analysing and assessing system performance, in

• Consistently monitor from one period to another, rather than on an intermittent

• Measure performance as far as possible against like-for-like comparators, e.g. peers

Pa g e 2 AML Transaction Monitoring Sytems

Reporting & Review

AML Transaction Monitoring Sytems Pa g e 3

You might also like