26 May 2021

The Future of Transaction Monitoring: Better ways to detect and disrupt financial crime

New research commissioned by the SWIFT Institute analyses the current financial transaction-monitoring model, and suggests opportunities for the future.

The surveillance of client transactions by financial institutions, known as transaction monitoring has become a core Financial Crime Compliance (FCC) function. Market research suggests that transaction monitoring is one of the major growth areas in the global Regulatory Technology (RegTech) market, worth USD 2.2 billion in 2020.

The obligations to monitor client transactions for inconsistent activity and reporting suspicious activity are core elements in the 40 Recommendations of the Financial Action Task Force (FATF), the international standard-setter for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT).

These laws and regulations have led to the evolution of a dominant transaction-monitoring model in the private sector, especially amongst financial institutions. This model typically comprises automated platforms that apply supposed patterns of illicit behaviour (often referred to as ‘typologies’ or ‘red flags’) to transactions, in order to generate alerts.

Transaction monitoring, however, brings significant costs for financial institutions. FCC teams often find themselves caught between internal pressures to keep costs down, and regulators’ requirements that financial institutions maintain broad coverage of all relevant risks. These problems have spurred a widespread desire across the AML/CFT ecosystem to reduce waste and improve the delivery of actionable and relevant financial intelligence.

This research paper analyses the failings of the current transaction-monitoring model given the scale of investment, the balance between cost and benefit along with the overall effectiveness of the suspicious transaction-reporting regime. Authored by Matthew R. Redhead, Associate Fellow, Royal United Services Institute (RUSI), it explores industry initiatives for innovation and reform and provides a set of recommendations to both address existing pain points and to provide potential alternatives and opportunities for the future towards the prospect of systemic monitoring.

Download the summary paper here.
Download the full research paper here.


by Matthew R. Redhead

  • Royal United Services Institute (RUSI)