Screening Guidelines for Payments in 2024: Comprehensive Overview
In the ever-evolving world of finance, the importance of safeguarding financial systems against fraudulent activities cannot be overstated. Two key measures employed to achieve this are payment screening and transaction monitoring.
Payment screening, a pre-transactional, real-time or near-instant check, serves as the first line of defense in the fight against financial crimes. Its primary purpose is to stop illegal or high-risk transactions before they occur by scrutinizing payment details such as the sender, receiver, countries involved, message content, and matching these against sanctions or watchlists. By doing so, payment screening ensures compliance with sanctions and prevents known threats from proceeding [1][3][4][5].
On the other hand, transaction monitoring is a post-transactional process that focuses on detecting suspicious or unusual behavior patterns in financial transactions over time. This analytical, pattern-based system is designed to identify potential money laundering, fraud, or structuring by analysing transaction patterns and customer behavior over a period. While payment screening is focused on individual transaction risks based on static criteria (e.g., sanctioned entities), transaction monitoring supports ongoing Anti-Money Laundering (AML) and fraud detection efforts by analysing long-term behavioral trends and patterns to catch activities that evade one-time checks (e.g., structuring, layering) [1][3][4][5].
The process of payment screening involves data collection, rule-based screening, real-time analysis, scoring and risk assessment, manual review, and documentation. It is typically carried out at specific moments in the customer lifecycle, such as onboarding or large transaction attempts [1]. In contrast, transaction monitoring involves ongoing analysis of a customer's entire transaction history and behavior over time.
The importance of these measures is underscored by the significant losses resulting from payment fraud. In 2022, payment fraud resulted in losses of $1.59 billion in the US and $41 billion globally in e-commerce [6]. To combat such losses, financial institutions are urged to maintain robust payment screening and transaction monitoring systems.
In the event of suspected money laundering, a Money Laundering Reporting Officer (MLRO) may submit a Suspicious Activity Report (SAR) to the local Financial Intelligence Unit (FIU) [2]. These reports play a crucial role in investigating and disrupting money laundering activities.
In conclusion, payment screening and transaction monitoring are complementary and essential components of comprehensive financial crime prevention frameworks. By understanding their purposes, processes, and differences, financial institutions can better protect themselves and their customers from the threats posed by financial crimes.
References: [1] Payment Screening vs. Transaction Monitoring: What's the Difference? (2021). Javelin Strategy & Research. [2] Suspicious Activity Reports (SARs). Financial Crime Enforcement Network (FinCEN). [3] Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). European Central Bank. [4] AML/CFT Risk Assessment Guidelines. Financial Action Task Force (FATF). [5] Payment Screening and Transaction Monitoring: Best Practices for Financial Institutions. World Bank Group. [6] 2022 Global E-commerce Fraud Report. Kount.
In the realm of business and technology, payment screening and transaction monitoring are crucial measures employed by financial institutions to safeguard against financial crimes and prevent loss due to payment fraud. Payment screening, a pre-transactional process, serves as the initial defense by scrutinizing payment details and stopping illegal or high-risk transactions, while transaction monitoring, a post-transactional process, detects suspicious behavior patterns over time to identify potential money laundering or fraud.
