The impact of exceptional times on transaction monitoring
Blog: Pauliina Hiienkoski & Tapio Usenius
The COVID-19 pandemic and the consequent restrictions have caused major changes to transaction traffic. This brings new challenges for banks in terms of detecting and reporting unusual transactional activity.
The restrictions caused by the pandemic have had an exceptional impact on the movement, interaction and consumption patterns of people. The restrictions have also impacted on the operating environment, revenue and transaction traffic of businesses in multiple industries. The effect of these changes on banks’ transaction monitoring is evident. Traditional transaction monitoring scenarios are not designed for exceptional circumstances where the operation of certain industries is limited, if not nearly prevented altogether. The imposing of restrictions, their gradual running down or re-tightening, and the eventual re-opening of society make it challenging to detect unusual transaction behaviour based on rule-based parameters and customers’ transaction history.
The previously unforeseen and unexpected changes caused by the pandemic have also given banks the opportunity to critically assess their controls and processes related to anti-money laundering. For instance, the situation may have complicated the forecasting of workloads and the transition to remote work may have hindered internal communications and the sharing of ‘silent knowledge’. Additionally, both the consideration of new emerging risks in transaction monitoring, and the development and implementation of technologies and processes to manage those risks have been challenging.
Even normal seasonal fluctuation in industries where such variance is typical can lead to the generation of large number of alerts in banks’ systems. Thus, banks should prepare for the post-pandemic re-opening of society. The potentially accelerating vaccination pace and increasing movement of people, both domestically and across borders, may lead to a significant increase in demand in certain industries. This would be reflected in the transactions of businesses.
Preparing for changes in transaction traffic
Unpreparedness for the changes in transaction traffic can quickly lead to large numbers of alerts. As all alerts must be processed responsibly and their potential closure must be justified, this may lead to the accrual of an unprocessed backlog of alerts. Investigating a backlog in line with the supervisory expectations, without undue delay, is time-consuming and expensive. Therefore, it is beneficial to anticipate the changes while applying a risk-based approach and taking the operating environment into consideration.
When preparing for these potential changes, it is recommended that banks consider the following questions:
- How can the potential changes in the volumes of transaction monitoring alerts be forecast?
- How can the potentially increasing number of alerts be processed responsibly, utilising a risk-based approach?
- How can certain conditions or thresholds of the existing scenarios and automated controls be adjusted in order to consider significant changes in transaction traffic and thus prevent the accrual of a backlog of false alerts?
- What opportunities does the use of analytical investigation approaches in addition to manual investigation offer when processing large numbers of alerts?
- How to prepare for potentially permanent changes in transactional behaviour, e.g. in relation to online, card and mobile payments and cash purchases?
The Finnish Financial Supervisory Authority has emphasised that anti-money laundering efforts should continue in a ‘business as usual’ manner despite the pandemic. Alerts must be investigated, and suspicious activity reports must be filed on them where needed, responsibly and without delay. In the consideration of the impacts of the pandemic, the focus should not only be on forecasting the alert numbers. Operators should also scan for emerging risks and assess whether the changes in a customer’s activity are in line with the expectations and the changes in the operating environment. Additionally, banks should consider how potential new types of fraud can be detected in the future.