Transaction Monitoring Framework

In the dynamic world of securities trading, robust transaction monitoring is not just a regulatory requirement but a cornerstone of operational integrity. sharing insights into our comprehensive transaction monitoring framework.

a) Risk Assessment:

• Business Model Analysis:?Identify key risks based on the firm's products,?services,?clientele,?and geographic footprint.?Assess susceptibility to market manipulation,?insider trading,?money laundering,?terrorist financing,?and fraud.
• Customer Risk Assessment:?Implement KYC/AML procedures to categorize customers based on risk level.?Allocate transaction monitoring resources accordingly.
• Transaction Risk Assessment:?Analyze historical transaction data to identify typical patterns and anomalies.?Design scenarios to flag suspicious activity based on volume,?velocity,?value,?time of day,?counterparties,?and asset classes.

This ensures that our monitoring scenarios and parameters are precisely calibrated to identify potential risks effectively

b) Testing:

• Scenario Testing:?Simulate suspicious activities and ensure scenarios effectively generate alerts.?Test for false positives and negatives.
• Parameter/Threshold Testing:?Validate accuracy and effectiveness of parameters and thresholds.?Adjust as needed to optimize alert relevance and minimize false positives.
• Integration Testing:?Test compatibility and data flow between transaction monitoring system and other IT systems.?Ensure smooth alert generation and investigation workflow.

·???????? Prior to activating any monitoring scenarios or altering parameters in our production environment, ?undertake rigorous testing. This ensures accuracy and reliability in our monitoring processes.

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c) IT Systems and Software:

At the heart of framework are state-of-the-art IT systems and software, enabling to monitor transactions with high efficiency and accuracy

• Transaction Monitoring System (TMS):?Select a robust TMS capable of handling high-volume transaction data,?generating real-time alerts,?and integrating with other systems.
• Case Management System (CMS):?Implement a system to manage investigations,?document findings,?and track Suspicious Transaction Reports (STRs).
• Data Warehouse:?Store historical transaction data for pattern analysis,?scenario creation,?and regulatory reporting.

d) Scenarios and Parameters/Thresholds:

Employ specific transaction monitoring scenarios and thresholds, reflecting the unique aspects of our client transactions and market behaviors

• Scenarios:?Develop scenarios for suspicious activity like large value transactions,?rapid trading,?unusual trading patterns,?and transactions involving high-risk customers or countries.
• Parameters/Thresholds:?Set dynamic parameters and thresholds for transaction amounts,?frequency,?velocity,?counterparty relationships,?and asset classes,?taking into account customer risk profiles and market conditions.

e) Suppression and Bulk Closure Policy:

• Policy:?Define clear criteria for suppressing or bulk closing low-priority alerts to avoid investigator overload.?This could include repetitive false positives,?insignificant transactions,?or activity explained by prior investigation.
• Governance:?Establish an approval process for suppression or bulk closure to ensure compliance and mitigate risks.

f) Alert Investigation Process:

• Alert Triage:?Prioritize alerts based on risk level and potential financial crime indicators.?Assign analysts with appropriate expertise to investigate high-priority alerts.
• Investigation:?Conduct thorough investigations,?considering alert details,?customer profile,?transaction context,?and external intelligence.?Use data analytics and forensic tools to uncover hidden patterns.
• Documentation:?Document investigation findings,?evidence collected,?and rationale for conclusions.

·???????? Upon alert generation, have ?process for identifying and investigating customers, ensuring that all suspicious activities are scrutinized effectively.

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g) Internal STR Reporting:

• Reporting Thresholds:?Define internal thresholds for reporting suspicious transactions as Suspicious Activity Reports (SARs) to the compliance department.?Consider potential financial crime risks,?regulatory requirements,?and potential reputational damage.
• Escalation Protocol:?Establish a clear escalation protocol for urgent or high-risk SARs requiring immediate action.

h) External STR Reporting:

• Regulatory Requirements:?Understand and comply with relevant regulations for filing STRs with the financial intelligence unit (FIU).
• Timing and Content:?Report STRs promptly and accurately,?including detailed information on suspicious transactions,?customers,?and potential money laundering or other financial crime risks.

i) Tipping Off Prevention:

• Communication Policy:?Implement a strict communication policy to prevent accidental or deliberate tipping off of potential suspects during investigations.?Restrict access to sensitive information to authorized personnel and implement data security measures.
• Training:?Train staff on tipping off risks and legal consequences.

·???????? Have arrangements to prevent 'tipping off' - integral to framework, ensuring that investigations and reporting are conducted without compromising the integrity of the process.

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j) Records Keeping and Retention:

• Record Types:?Maintain records of all alerts,?investigations,?SARs,?and related documentation for regulatory compliance and audit purposes.
• Retention Period:?Retain records for the period required by law or internal policy,?typically several years.?Securely archive or dispose of records after the retention period expires.

k) Ongoing Assurance Processes:

• Alert Review:?Regularly review generated alerts to assess the effectiveness of scenarios and parameters.?Adjust settings as needed to optimize accuracy and minimize false positives.
• Investigation Effectiveness Review:?Evaluate the effectiveness of investigation procedures and tools.?Identify areas for improvement and provide feedback to investigators.
• STR Analysis:?Analyze submitted STRs and feedback from FIU to identify trends and adjust risk assessment and monitoring scenarios as needed.
• External Audits:?Conduct periodic internal and external audits of the transaction monitoring framework to ensure compliance,?effectiveness,?and continuous improvement.

·???????? Have ongoing assurance processes evaluate the effectiveness of alert generation, monitoring scenarios, investigation processes, and STR processes, both manual and automated.

l) Audit Findings:

• Regularly review audit findings related to transaction monitoring processes and address any identified deficiencies promptly.
• Use audit findings to improve scenario design,?investigation procedures,?and overall framework effectiveness.

·???????? Have Regular internal and external audits conducted to assess the efficacy of transaction monitoring framework, ensuring continuous improvement and compliance.

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