The five key components to an effective transaction monitoring and reporting system are: (i) identification of unusual or suspicious activity; (ii) managing alerts with an alert risk scoring model; (iii) STR or SAR decision making; (iv) STR or SAR completion and filing; and (v) monitoring and STR or SAR filing on continuing activity. To effectively identify unusual or potentially suspicious activity, LFIs should first maintain a transaction monitoring program based on an underlying AML/CFT risk-based assessment. The transaction monitoring program should take into account the AML/CFT risks of the LFI’s customers, prospective customers, counterparties, businesses, products, services, delivery channels, and geographic markets in addition to helping prioritize high-risk alerts. However, the sophistication of monitoring systems can differ based on an LFI’s AML/CFT risks. Monitoring systems typically include employee identification or referrals, transaction-based (manual) systems, surveillance (automated) systems, or a combination of these. Overall, LFIs must adopt monitoring processes and procedures to monitor customer activity that are commensurate with the size and nature of the line of business and the money laundering and the financing of terrorism and illegal organisations’ risks posed by their relevant customer base. The monitoring system and/or manual processes must reasonably demonstrate that transactions that carry the highest risk of money laundering and financing of terrorism and illegal organisations are subject to enhanced scrutiny.

As part of a risk-based approach to AML/CFT, in the case of customers or Business Relationships identified as high-risk, LFIs are expected to investigate and obtain more information about the purpose of transactions, and to enhance ongoing monitoring and review of transactions in order to identify potentially unusual or suspicious activities. In the case of customers or Business Relationships that are identified as low-risk, LFIs may consider monitoring and reviewing transactions at a reduced frequency.

Examples of some of the methods that may be employed for the ongoing monitoring of transactions include, but are not limited to: