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The Fifth AML Pillar – Ongoing Transaction Monitoring


Written by Don Lee

FINCEN published its final long awaited ‘Customer Due Diligence Rule‘ (CDD) for covered financial institutions on May 11, 2016. FINCEN states there are four elements of the CDD that must be explicit in AML procedures. These include: (1) customer identification and verification; (2) beneficial ownership identification and verification; (3) understanding the nature and purpose of customer relationships to develop a customer profile; and (4) ongoing monitoring for suspicious transactions and, on a risk basis, maintaining and updating customer information.  Most firms currently do the first two of the four, but many do not have procedures or processes for the last two.

How do firms comply with the last two requirements. Firstly, the firm will have to revamp their CDD procedures to capture the nature and purpose of the customer relationship and develop a customer profile. This information is valuable in assessing the client’s overall risk level and should also be included as a factor in the customer’s risk rating. Most firms can easily comply with gathering additional information, but many don’t have a process for creating a risk rating system and monitoring which leads to the last requirement of ongoing monitoring on a risk basis. Information derived from the first 3 requirements can be used as additional parameters in setting up the customer risk profile and parameters for their transaction monitoring rules. Firms must then conduct ongoing transaction monitoring on a risk based basis to identify suspicious transactions. Most firms are still using clearing firm exception reports in their transaction monitoring process which does not provide risk based alerts, or alerts based on the firm’s business model and unique risk.

Using software such as Catalyst allows firms to customize their customer’s risk profiles and ratings based on the firm’s unique business parameters and requirements with information from the first 3 parts of the rule. The firm can then use Catalyst to conduct ongoing transaction monitoring with rules specific for high, medium and low risk customers to comply with FINCEN’s CDD rule. Clearing firm exception reports will not work for compliance with the new CDD rule because it provides a broad transaction report that is not related to each firm’s risk and unique business lines. The other caveat to the last part of the rule is maintaining and updating customer information. Firms should be reviewing high risk accounts periodically and updating their CDD and KYC documentation. Using Catalyst, firms can create KYC audits to document their periodic reviews with changes to the customer’s information that may change their risk.

The use of automated compliance solutions is a necessary tool for firms to comply with the increasing regulatory obligations, and FINCEN’s new CDD rule. Catalyst is a cost effective solution for firms of all sizes to enhance the efficiency and effectiveness of their compliance and AML programs.


About FinWebTech

FinWebTech is a Service as a Software (SaaS) company developing compliance automation applications to assist firms with ‘Big Data’ and the growing needs of compliance in the financial services industry. FinWebTech’s inaugural product Catalyst provides firms with: Automated Transaction Surveillance for AML and Suitability;  Risk Assessments and Risk Management tools; Trade Blotter Management, AML Management, Suitability Management and FINRA 2111 controls; Supervisory and Management Controls,  Audit Logs, KYC, Document Repository and other tools to assist compliance and AML departments manage their programs and reduce risk. Unlike other applications, Catalyst is unique because it was designed by an industry experienced Chief Compliance Officer for compliance. FinWebTech’s mission is to provide all financial services firms with access to compliance automation and has priced its products to give small to medium sized firms access to technology.

For more information on FinWebTech and Catalyst, please contact Don Lee at or 305-409-1307



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