In plain English
Transaction monitoring systems apply rules, scenarios or models to customer activity and generate alerts when something looks unusual. Analysts review the alerts, decide whether the activity is explainable, and escalate where suspicion remains, which may lead to a suspicious transaction report.
Its effectiveness depends on the quality of the data it sees, how well the scenarios match the institution's real risks, how thresholds are set and tested, and how well alerts are handled.
Why it matters to a board
Monitoring is one of the most visible controls to supervisors and one of the most costly to run. Boards should see whether it catches the right risk, and how much effort is wasted on false alarms.
Common mistakes
- Thresholds that nobody can justify, or that have not been reviewed for years.
- Testing only above the threshold and never below it.
- Measuring success by how fast alerts are closed.
- A vendor system that nobody inside the institution can explain.
What the standards and regulators say
- FATF Recommendations: international standards on combating money laundering and the financing of terrorism and proliferation
- UAE: Federal Decree-Law No. 10 of 2025 on anti-money laundering and combating the financing of terrorism and proliferation, and its executive regulations (Cabinet Resolution No. 134 of 2025)