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How to reduce your financial crime risk exposure with better transaction monitoring data


Financial crime is an ever-growing concern. The pandemic saw its accelerated evolution as criminals took advantage of new ways of targeting victims. According to UK Finance, £750 million was stolen through fraud in the first half of 2021, a 30% increase compared to the same period a year before (H1 2020). 

Banks and financial institutions are responsible for helping to tackle financial crime. So financial risk management is one of the key factors that correspondent banks will assess when reviewing a relationship with you.

What is financial crime?

  • Financial crime definition: an activity that involves fraudulent behaviour and the misuse of information for the purposes of financial gain. It covers all crimes that involve taking money or property that someone else owns. Both individuals and groups can commit financial crimes, and it usually involves the criminals trying to trick potential victims into revealing their personal details (such as passwords) by using scam communications: phone calls, emails, texts, fake websites, and more. Financial criminals will then use the information they’ve tricked out of a victim to authorise payments on their behalf.

In this article, we’ll look at how correspondent banks assess financial crime risk today, the problems respondent banks face in providing the right data to pass these assessments, and how better transaction monitoring data can solve these by reducing your financial crime risk exposure and helping you attain or retain your correspondent banking relationship.  

How correspondent banks assess financial crime risk 

Correspondent banks will assess your financial crime risk by applying a range of anti money laundering tools, which increasingly will include (AML) transaction monitoring. They’ll review all of your transactions to see if they deem anything as suspicious that may indicate money laundering (the illegal process of making large amounts of money generated by criminal activity). If they identify a number of suspicious transactions within a set timeframe, they’ll adjust your financial crime risk profile assessment. This process is called transaction monitoring.

What is transaction monitoring?

Transaction monitoring in AML (anti money laundering):

The assessment of the transaction flow of a customer through transfers, deposits and withdrawals. A correspondent bank will assess all the information on a respondent bank customer – including all interactions –  to get a full picture of customer activity.

According to the FATF standards, transaction monitoring includes: 

  • detecting layering
  • following up on any detected abnormal activity 
  • better identifying suspicious or abnormal activity 
  • applying transaction thresholds.

How do correspondent banks carry out transaction monitoring on respondent banks? 

Correspondent banks compare actual transactions to the transactions you’ve described during your onboarding with them. They’ll often use excel to monitor this, and formulas will flag up anomalies and things that the correspondent bank needs to investigate further. If this happens, they’re likely to ask you for more information.  

3 categories that a correspondent bank will often consider when assessing a respondent bank’s financial crime risk  

Customer factors

- The respondent and their customer's 

Geography factors

- The location of the respondent

Activity factors

-The purpose, use and expected transaction flows of the respondent account. (Transaction monitoring)

(according to the BAFT’s Respondents Playbook)

How often do correspondent banks monitor the financial crime risk of respondent banks

Most jurisdictions require correspondent banks to monitor the financial crime risk of respondent banks both on an ongoing basis, as well as during a set periodic review where they’ll carry out a due diligence refresh. How often this is carried out is based on their assessment of your financial crime risk. It’s not standardised. If the correspondent bank notices any change to your financial crime risk profile during either of these assessments, they’ll adjust your risk profile, as well as how often they carry out the periodic review.

The problem: no standardised approach

Each and every correspondent has a different and unique risk appetite, creating a lack of transparency from bank to bank on what is needed from the respondent when their risk profiles or transactions are being assessed. 

This means respondent banks struggle to provide relevant transaction data to satisfy the correspondent banks' individual requirements for passing financial crime risk assessment. 

What’s more, the current financial crime risk management process that many respondent banks use is outdated: it’s manual, inefficient, subjective, and data-poor. The transaction monitoring systems are not advanced enough to provide relevant transaction data. They rely on transaction monitoring by the traditional tick-box approach (simply filling out the standard Wolfsberg Group AML questionnaire), or by using excel – where compliance operations have to gather, queue and review unusual transactions individually before approving or declining them. These simply cannot keep up with the speed and volume of transactions moving through the system, and they certainly can’t provide the relevant data that each correspondent bank needs. 

Read more about the problems with the traditional AML system and how it’s failing financial institutions here.

If you also add in the evolving landscape and the increasing popularity of mobile payments, the need for a standardised approach becomes even more pivotal. With mobile payments becoming more and more popular – the norm, in fact – the volume of transactions is rapidly increasing, with vast amounts of money instantly moving through mobile payment systems. (According to the GSM Association’s 2021 report, over $2 billion is transacted via mobile each day.) It can now just take a few simple clicks to accept payments internationally. Manual review using excel simply cannot keep track of anomalies with this volume and speed. 

How better transaction data and analytics can solve this problem, and reduce your bank's financial risk

If you can provide your correspondent bank with a standardised, advanced and data-rich overview of your financial crime risk profile, you’ll have a much greater chance of winning or retaining your correspondent banking relationship. 

And better transaction data can do this. 

Better transaction data means no more manual monitoring of transactions in excel, causing inaccurate and outdated risk assessments. It means you can provide your correspondent bank with a financial crime risk rating which provides a nuanced, in-depth and real-time assessment of your risk profile. This will gain you their trust, and help towards securing or improving your relationship. 

How to obtain better transaction data and analytics

So, you need automated and rich transaction data to show correspondent banks' a critical self-evaluation of your financial crime risk. How? Assess your institutional risk with Elucidate’s platform. We work alongside banks to provide a robust platform to manage financial crime risk; our model is an authorised benchmark by ESMA and BaFin. We use data analysis and machine learning to score and price risk, which will provide you with a comparable and comprehensive view of your own bank's financial crime risk, as well as your counterparties. Our index shows nine risk themes, one of which is transactional activity. 

Want to assess your institutional risk with Elucidate?

Book a demo today
Elucidate team
Elucidate team

Posts written by diverse members of the Elucidate team.

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