How to navigate transaction monitoring during a recession

By 6 minute read

Economic downturns are hard to handle for any business. But facing lower resourcing and increasing crime means compliance teams are in for a tougher time than most. 

The dynamic and intricately connected world of modern-day finance has placed increased pressure on anti-money laundering and other anti-financial crime measures for regulated businesses. Knowing how to handle transaction monitoring during a recession is more important than ever.  

Compliance teams are likely to find pressure on their department increase even further as occurrences of bribery, corruption, fraud, and other serious offenses are likely to rise.  

For some, this will undoubtedly arise out of desperation. In most cases, however, criminals will leverage the opportunities created by a renewed global financial crisis to make their attack. As anti-corruption watchdog Transparency International put it, “corruption often thrives in a time of crisis… when institutions and oversight are weak.” 

Unique risks and challenges 

During times of economic downturn such as a recession, when businesses are dealing with increased financial pressures affecting their profit margins and future survival, unique challenges and sector-specific risks tend to increase. This has an impact on criminal typologies as greater incentives and active pressure sway otherwise lawful individuals to engage in financial misconduct.  

There may be more temptation among employees to engage in this conduct to meet certain targets, for example, such as falsifying reports and exploiting government subsidies, grants, and other financial assistance. Employees themselves may also become more vulnerable to fraud.  

The need for continued compliance 

It’s all too easy for firms to lose sight of their compliance obligations and let standards slip during a period of economic downturn. This is a natural result of survival instincts kicking in.  

When it comes to transaction monitoring in a recession, however, the compliance function becomes even more important because of the rapid speed at which the market moves. Organizations must be able to respond quickly and react to these changes in order to stay ahead of nefarious individuals and market pressures.  

It may be tempting for leaders to contemplate slimming down their compliance function in a bid to cut costs, but compliance obligations don’t simply disappear because there’s a recession. Instead, leaders should be looking to do the opposite by supporting and optimizing their compliance function. This should be one of their main priorities for effective transaction monitoring in a recession.  

Quality vs quantity for transaction monitoring in a recession 

It’s now easier than ever for consumers to access a wide range of financial products, from bank accounts and credit cards to loans and insurance products—thousands are available almost immediately at our fingertips. 

While this digital transformation of finance is a good thing, it has led to a huge increase in financial crime because there are more avenues available for criminals to exploit. In response, organizations—especially those operating in regulated industries—have dramatically increased the size and capabilities of their anti-money laundering and other compliance functions.  

Keeping ahead of the latest threats from criminal actors isn’t just about pouring more money into your compliance function, though. Organizational leaders need to be more tactful and ensure that any investments into compliance efforts are going to the right place and, indeed, to the right technology.  

It’s not only the finance space that has benefitted from digital transformation; everything has, including compliance. Artificial intelligence, machine learning, and automation are all things that technological advances have made possible, and they sit at the core of any modern compliance operation, whether it focuses on anti-money laundering, transaction monitoring, adverse media monitoring, or anti-terror financing.   

The benefits of real-time transaction monitoring in a recession 

Nowhere is this more apparent than in transaction monitoring, where significant increases in financial crime have made the real-time tracking of transactions and other activity a necessity for any business that has dealings in finance. 

Modern banking is a perfect illustration of why this is the case. In just a few hours, a criminal can open a bank account online, move funds, and close it down again, well before traditional transaction monitoring processes like batch sorting could identify potential money laundering and alert fraud teams. 

This doesn’t apply only to money laundering. Real-time, automated transaction monitoring can be used to detect potential instances of bribery, theft, terror financing, trafficking, exploitation, corruption, and more, and prevent them from occurring at that point in time.  

With real-time transaction monitoring, compliance teams can benefit from: 

Easily identifying suspicious activity: Automated transaction monitoring tools can be quickly set up and deployed with custom rules to identify activities that fall outside of expected or permitted profile and network patterns. 

Higher accuracy over time: Transaction monitoring tools get better with time as the artificial intelligence and machine learning models that power them help the system to learn and fine-tune itself, without the need for third-party support.  

Embracing automation: Automation is what powers the best transaction monitoring tools. It provides compliance teams with a high-level overview of their customers’ profiles, flags suspicious activity, and streamlines reporting. This delivers huge savings in both time and money compared to traditional monitoring processes and workflows.  

Get ahead of the economic storm 

Compliance teams benefit from complete oversight of their transaction monitoring. Stay ahead of financial criminals with data insights available using a centralized dashboard to review activity, manage alerts, begin remediation processes, and remain fully compliant with AML regulations. 

Ebook: How to set efficient AML Transaction Monitoring Rules