All about continuous AML monitoring - what, why, and how
The early 2000s, particularly post-2001, marked a significant shift towards recognizing and implementing continuous anti-money laundering (AML) monitoring as a fundamental component of effective anti-money laundering strategies. Today, it sits at the core of the fight against financial crime; an invaluable instrument in an organization’s compliance toolbox.
By The Fourthline Team
Financial service providers have both a regulatory and a strategic impetus to ensure they are performing continuous AML monitoring. Failure to do so not only exposes them to increased money laundering risk; they also risk missing out on a competitive advantage.
What is continuous AML monitoring?
Continuous AML monitoring is the process of screening existing clients on a regular basis (e.g., every 24 hours) to keep track of potential changes in the risk they pose to your organization. In doing so, they can identify new threats promptly and take the necessary measures to prevent money laundering.
Think of it in the context of gardening. Just as a gardener must be vigilant to prevent the spread of unwanted plants, continuous AML monitoring is necessary to weed out illegal financial activities from an organization.
Nowadays, continuous AML monitoring is conducted through automated software that detects suspicious developments in clients' risk profiles.
AML screening is a one-time or infrequent check on whether an individual is present on a global watchlist. In that sense, it is a static process. Usually, it happens when onboarding a new client. However, it can also occur at other points of the user journey, such as upon the request of the regulator, an accident, or in case of suspicion.
AML monitoring, on the other hand, is a continuous process where a client’s risk level is evaluated on an ongoing basis (e.g., daily). Think of it as a perpetual AML screening helping to identify red flags as they occur.
Why is continuous AML monitoring important?
Performing one-time or infrequent AML screening (e.g., when onboarding a new client or upon a request from the regulator) gives you a snapshot of the risk a client poses at that particular moment. However, the results are relevant only shortly after the screening is completed and until the red flags are properly handled. As a result, financial service providers have to rely on outdated information for a significant part of their operations.
In that sense, AML screening gives you 100% confidence that you are in the clear only at the time of screening. The lower the frequency of screenings, the bigger the opportunity for potential risk changes that you won’t be aware of.
For the process to be credible in a regulatory context, it needs to be repetitive to avoid risk slipping through the cracks.
Continuous AML monitoring provides a holistic approach to tackling money laundering. By screening daily, you can rely on credible information that reflects the most recent developments amongst your clients. As a result, you aren’t navigating the unknown and the risk of serving clients with unacceptable levels of risk is minimized.
Example: The Case of Alexander Shulgin and the EU Sanctions
Among them is Alexander Shulgin, former CEO of the Russian e-commerce giant Ozon. Shulgin was added to the EU's list of ‘designated persons’ shortly after the start of the war. Two months after the sanctions, he stepped down from his position. Ozon and its subsidiaries weren’t sanctioned by European or US regulators.
Then, in September 2023, the European Court of Justice ruled to lift the sanctions and Shulgin became the first Russian businessman to overturn financial sanctions by the EU. However, the Financial Times pointed out that the sanctions against him wouldn’t be lifted immediately. Moreover, the media noted that the European Council could appeal ECJ’s ruling or even impose fresh sanctions when the measures are up for renewal.
This example illustrates the complexity and the unpredictability of navigating the universe of sanctions and PEPs. Without automated continuous AML monitoring, keeping tabs on sanction list changes to avoid non-compliance would be an arduous, if not borderline impossible, process.
The regulatory and business arguments for performing continuous AML monitoring
When it comes to tackling financial crime, European regulators stick to the principle that “prevention is better than cure.”
Their main goal is to control money laundering and terrorist financing by preventing crime before it happens. To do that, in 2021, the European Banking Authority advised moving from post-execution transaction monitoring to real-time pre-execution monitoring to identify criminal activity. This approach is starting to become the industry norm. However, for it to succeed, financial service providers should first lay the foundation by tracking their clients’ risk profiles and watching out for any potential changes.
Ongoing AML monitoring is usually required due to switches between different risk categories or factors. For example, a changing client risk profile (e.g., from low to high); changes in a client’s residency (e.g., to a sanctioned or high-risk country); or a shift in your organization’s risk appetite or business relationships.
This is where continuous AML monitoring comes into play. Certain European jurisdictions are already stressing its importance for ensuring proper compliance and preserving the stability of their financial systems. For example, the Malta Financial Services Authority has introduced a regulatory framework targeting new Virtual Financial Asset Service Providers (VFASPs) looking to enter the market. Those entities are subject to fit and proper checks, regular reputation checks, and ongoing AML monitoring.
However, the importance of continuous AML monitoring goes beyond simply complying with regulations. It also has a solid business argument since it helps avoid the negatives accompanying non-compliance. Among them are fines, reputational damage, loss of market share, and even loss of business.
Furthermore, ensuring effective continuous AML monitoring can enhance a business’s credibility and foster trust with customers and partners. Fast and precise AML monitoring processes also facilitate seamless customer onboarding and reduce friction.
How Fourthline ensures continuous AML monitoring for its business partners
Screening a client during onboarding is straightforward. But when you have to monitor millions of clients on a daily basis, you need to be efficient and extremely precise.
To avoid non-compliance, you should be aware of the latest developments amongst your clients at any point in time. Are they on a sanction list? Have they become politically exposed? Are there any red flags in the news? And so on.
However, performing such a high-caliber investigation accurately and across the entire client lifecycle is a highly specialized, labor-intensive, and time-consuming process for which not all organizations have the resources. Furthermore, our research shows that, if done manually, it can contribute to 70% and 90% of the compliance costs that fintechs and banks pay, respectively. On top of that, manual processes are highly error-prone.
That’s where automation comes in.
Perhaps you have fully operational departments and back-office systems and need to delegate only specific compliance tasks. Or perhaps you are looking for an end-to-end partnership with a regtech provider to manage the entire AML screening cycle, from onboarding to daily monitoring. Either way, Fourthline has got you covered.
To support the shift from the traditional tick-the-box AML screening to proactive and ongoing monitoring, we designed a solution that helps you keep up with the latest changes in your clients’ risk profiles, detect anomalies, and flag suspicious activity with minimum effort on your side. Here is how we do it:
Conclusive outcomes to reduce the number of false positives
Adopting our solution means you will no longer have to deal with uncertainty.
If we detect a red flag, we will get to the bottom of it through an automated feedback loop and in-depth reporting to give you a conclusive outcome. That way, you won’t have to second-guess what a specific probability score means or deal with gray areas. Just the opposite - you will be able to act based on definitive information.
As a result, you can rest assured that you aren’t serving individuals with unacceptable levels of risk. More importantly - without breaking a sweat.
Screening against lists and renowned and proprietary databases
Dozens of watchlists updated daily, thousands or millions of clients, and all it takes is a single miss to leave you exposed. That is why you need a bird’s-eye view and automated intelligence covering the entire data universe.
Fourthline’s solution for continuous AML monitoring screens every 24 hours to check if your clients’ risk profiles have changed and whether they have appeared on:
-Politically Exposed Person (PEP) and Sanction lists - we use databases from industry-leading intelligence providers like Refinitiv and LexisNexis
-Adverse media monitoring - our solution keeps you up to date with early warning signs of potential risks associated with your clients appearing in the media. This is a crucial element of continuous AML monitoring since news about PEPs and sanctioned individuals can appear with very high frequency
-Business partner sensitivity lists - you can use your own custom lists of individuals you want or don’t want to engage with and we will reflect your preferences during the cross-referencing process
However, we don’t screen your entire client base against all lists on a daily basis. Our continuous AML monitoring flow is designed to screen against previous-day risk profile changes. This process optimization allows us to minimize your compliance costs and keep you protected.
Experienced financial crime professionals ready to assist you
After the automated checks are completed (and our analysts have concluded any additional investigations), you will receive a webhook and a full report with actionable insights and definitive outcomes about the confirmed hits. Our Client Due Diligence reporting and audit trails meet the requirements of regulators across Europe and beyond. In that way, you can take further and timely action if needed.
We have also developed a sophisticated Case Review and Auditing Portal optimized for your analysts. The powerful tool streamlines review processes, significantly enhancing the efficiency of case reviews. Its user-friendly interface allows your agents to quickly assess screening results and conduct in-depth investigations when needed.
You can also lean on our anti-financial crime team to assist you with open-source intelligence and additional investigations to ensure you have all the data needed to make an informed decision.
The benefits of integrating Fourthline’s continuous AML monitoring solution
Continuous AML monitoring is a journey, not a destination. To make it seamless, it is crucial to have a trusted partner who can equip you with the right tools.
Choosing Fourthline’s continuous AML monitoring solution ensures that you will:
-Expand your AML monitoring arsenal. Ensure you have all the tools you need to continuously monitor your client's AML risk
-Unlock scalability. Handle the initial screening and ongoing monitoring of your clients from day-one and scale as you grow
-Simplified integration. A single API with minimum implementation efforts ensures you can take advantage of various tools - from initial onboarding to re-KYC and continuous AML monitoring
-Timely and convenient AML monitoring. Be up to date with your clients’ risk profiles throughout their entire lifecycle by receiving relevant insights on time
-Reduce compliance costs. Capitalize on the powerful mix of automation and human anti-financial crime expertise
-Focus on your core business tasks. We take on the full investigation of hits and always deliver conclusive outcomes through an automated feedback loop
-Ensure compliance excellence. Remain compliant with the latest AML and Combating the financing of terrorism (CFT) regulatory requirements and best practices
Want to experience it first-hand? Try our free demo to see how our continuous AML monitoring solution works in practice.