Final answer:
Transaction monitoring is the continuous review of transactions to detect any suspicious activity. It starts from the very first transaction a customer conducts with a financial institution and continues throughout the business relationship.
Step-by-step explanation:
Transaction monitoring is the continuous review of transactions to detect any suspicious activity. It starts from the very first transaction a customer conducts with a financial institution and continues throughout the business relationship. This practice is crucial in combating financial crimes such as money laundering and fraud.
Transaction monitoring involves the use of advanced technology and analytical tools to analyze large amounts of data in real-time.
Suspicious transactions can be flagged based on predefined scenarios or through anomaly detection algorithms. For example, if a customer suddenly starts making unusual high-value transactions or transactions to high-risk countries, it can raise suspicions.
Transaction monitoring is an essential part of regulatory compliance for financial institutions. It helps them fulfill their legal obligations to report suspicious activities to the relevant authorities.
Additionally, it safeguards the institution's reputation by reducing the risk of being involved in illicit activities.