What is Ongoing Monitoring in AML?
Ongoing monitoring in AML is the continuous observation and analysis of transactions and customer behavior to identify and mitigate potential money laundering risks. It entails conducting regular customer service reviews, reviewing processes, and keeping an eye out for any suspicious or unusual behavior.
To understand why is ongoing monitoring important let’s suppose
A financial institution has implemented an anti-money laundering (AML) program that includes ongoing monitoring activities as a critical component. For months, one of his clients, a small business owner, has been trading consistently within normal limits. However, there has been a recent surge in large deposits, and international wire transfers frequently pass through multiple countries.
By implementing an ongoing monitoring AML, financial institutions can quickly identify and analyze unusual customer behavior that may indicate potential financial fraud. Based on defined rules and thresholds, the monitoring system generates alerts that highlight suspicious activity for further investigation.
In this case, the ongoing monitoring process continues to signal the sudden increase in the number of deposits in international transactions, prompting the company’s KYC/AML compliance team to engage in customer actions. They begin enhanced due diligence to learn more about the client’s source of income and business objectives.
Why is Ongoing Monitoring Important for Your Business?
Ongoing monitoring is among the 4 Pillars of KYC for effective identity verification. The ongoing monitoring process is as follows
- Recordkeeping and identification of the objective and nature of changing business relationships
- Client risk is reassessed based on business activities, transactions, and geographies, and the PEP and Sanctions databases are updated.
- Determine whether the client’s profile or activities are consistent with the KYC and risk assessment.
Here are some specific examples that show the importance of ongoing monitoring for your business and risk management strategy:
1 Changes in Client Profiles:
Client profiles can change dramatically over time. A previously known client can become a Politically Exposed Person (PEP) by working for a global bank or winning a political election. A foreign client may appear in a new checklist issued by regulatory bodies such as FINTRAC or may appear in negative publicity as a result of a high profile of corruption. Furthermore, a long-standing customer may relocate to countries in the European Union governed by the 5th and 6th Anti-Money Laundering Directives (5AMLD/6AMLD) and the General Data Protection Regulation (GDPR). These changes in client risk profiles necessitate a re-evaluation of risk assessments and modifications to your compliance strategy
2 Exposure to High-Risk or Sanctioned Countries:
Many countries keep lists of sanctioned entities or individuals, warning businesses not to conduct transactions with them or imposing specific reporting requirements. The Office of Foreign Assets Control (OFAC) list, for example, prohibits American citizens from doing business with entities sanctioned on the Specially Designated Nationals (SDN) list. Certain countries, however, may not be sanctioned or on any watchlist but still pose significant risks of money laundering and terrorism financing. Internal conflicts, frequent government changes, corruption, and weak regulatory frameworks are common in these countries. To avoid unintentionally participating in money laundering or terrorist financing, it is critical to implement a tailored ongoing compliance program for such jurisdictions.
3 Risk Assessment:
High risks exist in business relationships involving PEPs, close associates, people on watch lists, or people working in high-risk sectors or restricted countries. When conducting your customer risk assessment, it is critical to have up-to-date and reliable data to effectively manage these risks.
AML Ongoing Monitoring Frequency:
The frequency of ongoing monitoring activities may vary depending on factors such as the nature of your business, risk tolerance, and regulatory requirements. Establishing a reasonable ongoing monitoring AML frequency allows for effective risk assessment without taxing your resources is critical. Reviewing transactional data, conducting periodic customer due diligence reviews, analyzing customer behavior patterns, and utilizing advanced analytics and technology solutions for risk assessment are all common activities in AML ongoing monitoring.
According to FINTRAC, a comprehensive review of managed accounts should be performed at least once every 12 months. Before executing a trade for a client or recommending a trade to them, exempt market dealers (EMDs) must conduct a review within 12 months. In all other cases, reviews should be conducted at least once every 36 months. FINTRAC is expected to require ongoing monitoring on a monthly or quarterly basis for clients deemed high-risk. Furthermore, all transactions conducted by such clients should be closely scrutinized.
What are the Benefits of Ongoing Monitoring AML?
Periodic checks of high-risk customers against Sanctions and PEP lists provide several benefits to businesses, including the reduction of risks such as non-compliance and reputational damage. Here are the main advantages:
1 Comprehensive Data Checks:
Ongoing monitoring in AML allows businesses to access and review data from thousands of national and international databases. This keeps you up to date on your customers’ information as well as the countries in which your company operates.
2 Timely Risk Notifications:
You receive regular notifications about any negative media coverage or additions to watchlists that may pose a risk to your business as a result of ongoing monitoring. This enables you to stay informed and take appropriate precautions to reduce potential risks.
3 Mitigation of Business Risks:
You can proactively identify and address potential risks by implementing ongoing monitoring, particularly in high-risk markets. This allows you to avoid financial losses and protect your business interests.
4 Enhanced Compliance Flexibility:
By providing periodic updates, ongoing monitoring adds flexibility to your compliance program. This allows you to adapt to changing regulatory requirements and industry best practices, increasing the effectiveness of your compliance efforts.
In today’s complex financial environment, companies must implement an AML ongoing monitoring process. It ensures regulatory compliance, improves risk mitigation efforts, aids in the early detection of suspicious activity, and protects your company from financial and reputational risks. Companies can stay ahead of money laundering threats, maintain integrity, and contribute to the global fight against money laundering by carefully monitoring customer activity. To protect your business and maintain customer trust, make ongoing monitoring AML a pillar of your compliance strategy.