Regulating transaction screening protocols in banks is crucial for effective financial fraud prevention, especially given the significant rise in electronic banking transactions. In the second quarter of 2021, Pakistan saw 239.7 million electronic transactions, far surpassing the 152.6 million paper-based transactions. This surge in digital activity tells the importance of effective transaction screening measures. By promptly blocking unacceptable transactions, banks can reduce alert volumes and allow monitoring teams to focus on more complex suspicious activities. This proactive approach enhances financial security and ensures compliance with regulatory standards, protecting the banks and their customers from fraud.
Let’s explore the study of transaction screening, the associated terms of screening, its execution process, and the potential benefits it contributes to financial institutions.
What is Transaction Screening?
Transaction screening is an advanced method for checking any type of suspicious or prohibited activity before conducting financial transactions. If transaction analysis is found to be illegal and highly risky, the monitoring system would not only stop it but also report to the relevant departments to take legal action against them. The real-time transaction monitoring system is a layered and risk-based approach, which ultimately contributes to maintaining the AML regulations and the CFT due diligence program. Transaction monitoring systems play an indispensable role in financial institutions for screening out illegal activities executed by imposters in conducting money laundering and terror funding.
Understand the Associated Terms of “Screening”
The word screening plays an important role in financial institutions, and therefore, it is associated with the transaction; some of them are explained below:
Difference between Transaction Screening and payment Screening
Transaction screening looks upon the individual’s financial transactions before getting approved to check out if there is any type of illegality involved. Meanwhile, payment screening involves some other types of transactions, such as cash depositions, financial withdrawals, online payments, and ACH transactions.
Difference Between Transaction Screening and AML Regulations
Transaction screening has already been explained; on the other hand, AML regulatory measures ensure that a complete due diligence program is installed within financial institutions to screen out potential customers’ activities. Due diligence is a risk-based approach that deals with scrutinizing the onboarded customers and potential individuals who are acquiring financial services. It assists in finding out the customer’s previous activities to define their risk profile score. On the basis of these factors, they further get the chance to access the services or become part of the system.
AML Transaction Screening Process – A Complete Guide
Before executing a transaction, it undergoes a screening process to check its authenticity and see if it is being conducted for financial support or for getting other related benefits. Some of the major steps involved are given below:
- Payment is sent from the customer’s payment system to the screening solution, a process that covers the customer payment system.
- The screening engine processes the payment in real-time and sends one of the two messages for further proceedings. (a) The payment is OK and can quickly be processed. (b) The payment should be suspended for conducting further investigation.
- If further investigation is created, an alert or case is made through a proper alarm system.
- The case manager investigates the alerted payment and decides whether the (a) payment is okay and can be easily processed. (b) The payment should be rejected for executing a complete scrutinization process through legal investigation.
Payments that pass the initial screening are approved but typically only checked one by one. Once approved, these transactions are continually monitored with other transactions to ensure they aren’t part of any suspicious activity.
Potential Benefits of Transaction Screening in Financial Institutions
Bank transaction monitoring is essential for financial institutions, but screening is also considered a vital phenomenon in this regard.
- Transaction screening is a barrier to criminal networks which are trying their hardest to evade the sanctions. Therefore, it is regulated for potential enterprises to detect the imposters are violating their defined rules of AML measures.
- By blocking clearly unacceptable transactions right away, the payment screening team reduces the number of alerts for the transaction monitoring team. This allows them to focus on investigating more complex and suspicious activity patterns.
- It assists in improving the compliance and risk management protocols by integrating a multi-layered due diligence process.
The Bottom Line
The transaction screening process, with the assistance of monitoring, helps to fortify the integrity of financial institutions. The complete regulation of these monitoring and screening protocols helps compete with the potential challenges that are endured due to digital advancements. There should be strategic approaches for ensuring the KYT transaction monitoring process for real-time analysis. A complete scrutinization procedure can really assist in maintaining the reliability of the potential businesses and financial departments.
