Money laundering is the process of transferring illegitimate funds through a legitimate business or activity to conceal their origin. This makes it difficult for authorities to track the source of money and identify the criminals involved. People who finance terrorist organisations can use similar methods – by funnelling money through legal activities, they attempt to conceal where it is going and who is supplying it. This is why it’s so important for your firm to have a robust AML process in place.
Ongoing (or Continuous) Monitoring is a part of your KYC (Know Your Customer) processes, which refers to the process of regularly checking and verifying customer information to ensure that they are still compliant with regulatory requirements and to detect any suspicious or illegal activities. This ensures that your business activities are current and compliant with the risk appetite established at the beginning of the onboarding process.
How does it work?
As customer and business activities may change over time, you not only need to perform a KYC check at the beginning of the engagement with your customer, but you also need to use an ongoing monitoring system.
This is to ensure that risk profiles have not changed in such a way that exposes the firm to non-compliance and reputational damage.
The ongoing monitoring process involves periodically reviewing your customer’s data and transactions to identify and assess any potential risks that may have occurred since onboarding your customer.
The frequency and scope of ongoing monitoring may vary depending on the view of risk determined during initial onboarding, and the type of customer or organisation being monitored.
Why is Ongoing Monitoring such an important part of your AML processes?
Detection and prevention of suspicious activities
Your firm plays an integral role in protecting the economy from terrorism financing, drug or human trafficking, and other illegal activities. Ongoing monitoring helps in the early detection of any suspicious activities, which may indicate money laundering or terrorism financing occuring.
Compliance with regulations
Reporting entities, or relevant persons, are required to comply with AML regulations, or risk being fined. Ongoing monitoring is an essential part of your compliance process, and the cost of non-compliance can be astronomically high, as we have seen in the UK with Santander Bank being fined £108 million for AML failures, or the Crown Casino in Australia being fined $120 million for breaches of the AML act.
Protecting your firms’ reputation
Ongoing monitoring helps in maintaining the reputation of your firm, by ensuring that the money and transactions your firm deals with are not proceeds of a crime, or illegal activities. By implementing robust KYC processes, you can protect your reputation and maintain customer trust, leading to more word of mouth referrals and better brand reputation.
Ongoing monitoring helps in managing the risks associated with money laundering and terrorism financing by identifying and mitigating the risks in a timely manner. This critical aspect of financial regulation helps in detecting suspicious activities, complying with regulations, managing risks, maintaining reputation, and protecting the financial system.
How do I comply with my ongoing monitoring obligations?
There’s a few steps your firm must take in order to be compliant with your ongoing monitoring obligations.
- Customer Information Review: Regularly reviewing and updating customer information, such as contact details, identity information, and risk profiles, to ensure that it remains accurate. Engage with a provider that can make ongoing monitoring quicker and easier, to ensure that this information is accurate and kept up to date.
- Transaction Monitoring: Monitoring customer transactions for any unusual or suspicious activity, such as large or unexpected transactions or changes in behaviour patterns. Consider implementing a transaction monitoring software to speed up this process for you.
- External Checks: Using external data sources, such as news articles, public records, and sanctions lists, to identify potential risks and ensure customers remain compliant. Many AML technology providers offer PEP, sanctions and adverse media checks as part of their software.
- Artificial Intelligence and Machine Learning: Utilising AI and machine learning algorithms to analyse large amounts of data and identify potential risks, including those that may not be evident through manual monitoring methods.
So you’ve got this far, and are still tossing up whether it’s a necessary component of your AML processes? Think again.
Check out our Infographic on the Cost of Non-Compliance, to see what financial, reputational, and process related damage you could cause your organisation, if you choose not to comply with ongoing monitoring obligations.
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.