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Suspicious activity monitoring: Keys to strengthening your AML/CFT program

Terri Luttrell, CAMS-Audit, CFCS

November 4, 2024

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Ongoing monitoring is more than just a regulatory requirement

Suspicious activity monitoring is a cornerstone of a robust AML/CFT program, as emphasized in the FFIEC BSA Examination Manual. This critical function helps protect the U.S. financial system from misuse for money laundering, terrorist financing, and other financial crimes. Both FinCEN and federal banking regulatory agencies mandate ongoing monitoring for suspicious activity as part of the overall AML/CFT program. Financial institutions must customize their suspicious activity monitoring programs based on their unique risk profiles, taking into account product types, customer base, geographic locations, and transaction types. Key topics covered in this post:

How risk assessments allow institutions to account for emerging threats.
Core components of a successful monitoring program.

Building a risk-aligned suspicious activity monitoring program

A well-defined AML/CFT program requires strong policies, procedures, and processes to identify, evaluate, and report suspicious activity effectively. These foundational guidelines for suspicious activity monitoring should align with an institution’s risk profile, and actual practices must mirror written policies. Institutions should tailor these programs by considering their size, complexity, and unique risk profile—key elements that influence how monitoring is applied and optimized.

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Risk assessments and regulatory changes

Regular risk assessments are essential for identifying and mitigating vulnerabilities within the institution. With recent changes in AML regulations, such as FinCEN’s rule to strengthen and modernize financial institutions' AML/CFT programs, this step is also a regulatory mandate. Risk assessments allow institutions to recalibrate suspicious activity monitoring to account for emerging threats and regulatory expectations, aligning their processes with heightened regulatory scrutiny.

Two approaches to suspicious activity monitoring

Suspicious activity monitoring can be conducted through two main approaches: transaction monitoring (manual) and surveillance monitoring (automated). Transaction monitoring generally focuses on specific types of high-risk transactions, such as significant cash or wire transfers or transactions from certain geographic regions. Many smaller institutions rely solely on manual transaction monitoring due to budget constraints, while larger institutions increasingly employ surveillance monitoring for a more automated, comprehensive approach. As more regulators favor automated systems, the shift to surveillance monitoring across all asset sizes can help detect patterns of suspicious activity that manual monitoring may miss.

Core components of a successful monitoring program

Effective suspicious activity monitoring programs must include several essential components to ensure compliance and timely suspicious activity report (SAR) filing. Key elements include:

Identification or alert of unusual activity through employee detection, law enforcement inquiries, referrals, or automated system alerts
Alert management and escalation to ensure prompt action on high-risk alerts
SAR decision-making, typically handled by an AML/CFT Officer or compliance committee
SAR completion and filing in alignment with regulatory timelines
Ongoing monitoring of previously flagged activities to determine if further SAR filings are necessary

For institutions using surveillance monitoring, tailoring system parameters to match the institution’s risk profile is essential. Regular “above-the-line” and “below-the-line” testing ensures that significant suspicious activity does not go undetected, and the system should be optimized after any major institutional change, such as a merger or acquisition.

Managing alerts for effective suspicious activity monitoring

Managing alerts is a critical function of any suspicious activity monitoring program. High-risk alerts should be investigated immediately, while lower-risk alerts may undergo batch review or secondary processes. Establishing clear escalation protocols ensures prompt action on alerts requiring further investigation, thus supporting timely and accurate SAR filing.

To keep up with regulatory demands, institutions must have adequately trained and skilled staff to handle the complexities of suspicious activity monitoring. An institution's AML/CFT team, including the AML/CFT Officer, should have the necessary credentials and receive ongoing training to stay updated on emerging threats, typologies, and regulatory updates. Such a proactive approach helps institutions respond to new risks in real time.

Collaboration and quality control

A collaborative culture within the institution enhances the effectiveness of suspicious activity monitoring. Ensuring that all departments are equipped to refer potential suspicious activity to the AML/CFT team promotes thorough investigative coverage. Institutions should also participate in information-sharing initiatives, such as the USA PATRIOT Act’s 314(b) process, to stay informed on current threats and trends, fostering a proactive stance on suspicious activity monitoring.

While institutions are responsible for thoroughly investigating and reporting suspicious activity, they are not expected to uncover the underlying crime. Including detailed descriptions in SAR narratives supports law enforcement by enabling further investigation and action on suspicious activities.

To maintain high standards of compliance, financial institutions should regularly conduct quality control reviews and internal audits on their suspicious activity monitoring processes. Regular quality assessments identify areas for improvement and help prevent potential compliance issues. Additionally, engaging third-party experts for independent testing can uncover system gaps or blind spots that internal teams may overlook, enhancing the monitoring system’s reliability.

Documentation and reporting

Comprehensive documentation of all suspicious activity monitoring processes, investigations, and decisions is crucial for compliance and transparency. Accurate records, including SAR filings and rationales, are essential for regulatory reporting and demonstrate the institution's commitment to robust suspicious activity monitoring. Additionally, processes for tracking ongoing suspicious activity related to previously filed SARs ensure that institutions remain proactive in monitoring potential risks.

Conclusion

Suspicious activity monitoring is a dynamic and essential element of an institution’s AML/CFT program. Through a comprehensive, risk-based approach and advanced technologies, financial institutions can detect, investigate, and report suspicious activities effectively. Continuous staff training, adherence to regulatory standards, and periodic system optimization are critical to sustaining a strong suspicious activity monitoring framework. Financial institutions looking to strengthen their suspicious activity monitoring can turn to Abrigo’s BSA/AML advisory services for guidance, ensuring their programs remain aligned with best practices and regulatory expectations.

This blog was written with the assistance of ChatGPT, an AI large language model, and was reviewed and substantially revised by Abrigo's subject-matter expert.

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