Regardless of your company’s size and industry, you’ll likely stumble upon fraud attempts. Online hackers and fraudsters will attack even the smallest business if it means that they’ll profit from it.
Traditionally, businesses would manually track and file suspicious activity reports to the regulatory bodies. However, the latest transaction monitoring tools have become much better at recognizing, stopping, and reporting suspicious activities and fraud attempts.
While businesses still need to handle SAR filings, they can do this much more easily with the use of the latest AML tools. We’ll cover the basics of SAR filings and compare traditional ways of handling money laundering and other fraud attempts with the use of monitoring tools.
Overview of SAR filings
Suspicious activity reports, or SAR filings, are essential documents that businesses must submit to regulators. They are filed once businesses detect any type of suspicious transactions. Money laundering, fraud, terrorist financing, and other similar cases are the reasons why companies should file SARs.
They are legally obliged to file these documents, as failing to do so can make them liable for legal action. Furthermore, this can lead to other problems for the business, legal actions can lead to blows to their reputation and fines.
Depending on the region in which the company is based in, and the location of it’s customers, there are different regulatory bodies that handle SAR filings. For handle the filing process, AML teams and compliance officers are responsible.
Traditionally, SAR reports were filed manually, based on suspicions that employees or responsible individuals had. For example, frontline staff such as bank tellers and loan officers would recognize indications, such as strange transaction patterns, suspicious individuals, and customers who were reluctant to provide the bank with their personal information.
The employees would then contact the teams responsible for handling the AML process. Then, the team would conduct an internal investigation that aimed to review the suspicious customer, check their past transactions, and potentially have an interview with them.
Once the internal investigation was complete, the team had to choose whether to manually submit the SAR to the responsible government agency or a regulator. The process was manual, and it was prone to human error.
A bank teller who had hundreds of customers a day can’t possibly concentrate during the whole workday to act on all suspicious activity. Furthermore, the whole process was time-consuming, and there was always the possibility that the fraudster would get away with it before the process was complete.
What’s Real-time AML monitoring
While the internet has brought a lot of innovations, fraudsters have also found new ways to scam individuals and exploit businesses in finance. Thankfully, there’s a lot of software that follows fraudsters in their steps.
Any business has access to a case management software for AML for a monthly or yearly fee that allows them to improve their security significantly. AML solutions can track transactions initiated by customers in real-time.
This is a significant advantage compared to the traditional method of filing suspicious activity reports. We’ve already outlined the process and the way it was handled before, but nowadays, businesses are able to see all transactions that occur and decline or approve them.
AML software can have set rules that recognize transactions as suspicious based on certain parameters. They might recognize that a user from a country where the business isn’t operating wants to make continuous purchases, or that a politically exposed person is making vast transactions.
In case something suspicious like that ticks the box, the individuals responsible for handling fraud alerts will immediately receive a notification. Compared to traditional filing, the process of recognizing a fraud attempt is shortened from days to basically minutes.
If a politically exposed person, or PEP, tries to create an account on a finance platform, the AML tool will recognize this in a timely manner. It will use data gathered from governmental agencies, blacklists, sanctions lists, and news sources and help you evaluate the risk this PEP poses.
Solutions for transaction monitoring are much more than tools to file SAR reports. They include comprehensive information on customers, gathering data from dozens of sources and databases.
You can check certain information on customers, such as their email and phone number, and check whether the same information is used for multiple accounts or platforms. This way, you’ll recognize if the user is using the same phone to create fake accounts and identities.
Eventually, once you have to report a SAR, you’ll be able to easily use the platform’s features and insights to make the document easier. These tools significantly help in drafting the necessary documentation, helping compliance teams with their process.
Comparison of AML software and traditional SAR filing
Speed
One of the most obvious advantages we’ve mentioned about real-time monitoring software is that it’s much faster than the traditional SAR filing process. In many cases, the speed at which the fraudster is caught is crucial.
If the reaction doesn’t happen in a timely manner, the business itself can suffer, but the fraudster can also continue scamming other financial institutions or customers. Furthermore, the fraud attempt itself can be stopped through this software, as the officers will be able to decline the transaction if it goes over the risk threshold.
Accuracy
When it comes to accuracy, there are some upsides and downsides to both. Human-led investigations can be really precise and detailed, as they might recognize details that separate fraudsters from real customers.
On the other hand, humans are also susceptible to having a bias or making a mistake by accident. AML software is often powered by AI and ML, and it continuously learns how to recognize fraud attempts.
This makes it very efficient, but there’s also a possibility of a false positive. Thankfully, false positives can be handled by the relevant employees, preventing particular mistakes from occurring in the future.
Resources required
Both options can require a lot of resources. Human-based AML processes require whole teams of individuals who are educated and experienced in fraud prevention. Furthermore, the amount of papers, documents, and software to handle everything manually can also be high.
AML software is expensive if the company itself wants to fine-tune an AI model, or if it works in a niche where there aren’t many datasets about users. However, many solutions don’t require businesses to invest this much time and effort.
Instead, the solutions are already complete and ready to use, making them quite practical.
Cost
AML software can have high costs depending on the option and plan you’re choosing. You can subscribe monthly or yearly. Regardless, it can have high upfront costs, but it pays off through long-term efficiency and savings.
You won’t have to hire as many employees to handle AML processes, and you won’t have to worry about purchasing additional software. Traditional SAR filings are labor-intensive, as a team of employees can work for days in order to gather all the necessary documentation.
Risk mitigation
One of the largest advantages that innovative monitoring software has over traditional SAR filings is risk mitigation. While the former has a reactive approach, which means the fraudulent activity will be handled after it occurs, the latter can immediately minimize the risk.
Challenges to replacing traditional SAR filings
SAR reports are required, regardless of the tool that you use. However, the difference we’re talking about in this article is whether you should use additional software to help you with fraud prevention and SAR filing.
An important setback for using innovative software happens in the regulatory aspect. This is because the software must be vetted by the relevant agencies in order to be safe and approved for commercial use.
On the other hand, there are technological restrictions regarding the implementation of this software. If a business doesn’t experience a lot of online transactions, monitoring software might be obsolete.
Implementing AML monitoring is crucial
There isn’t anything necessarily bad with leveraging traditional SAR filing methods, but it’s often not enough. Once a company reaches hundreds of transactions a day, it’s basically impossible to manually analyze each one.
The businesses are still responsible for filing suspicious activity reports, but they can do this a lot easier once they implement the necessary tools. These tools don’t replace the need for SAR filings, but they make it a lot easier to do so.
Companies that embrace modern solutions will have it a lot easier as the industry evolves. They’ll be able to prepare for the new types of fraud more easily and keep up with the risks.
Veljko Petrović
Veljko is an IT student who has successfully combined his passion for technology with his exceptional writing skills. As an emerging specialist in cybersecurity, he has completed several courses and has been published in notable blogs in the industry. In his free time, Veljko enjoys weightlifting, reading, and programming.
Linkedin: https://www.linkedin.com/in/veljko-petrović-699ab0201/
Website: www.writerveljko.com
