With constantly evolving threats in the compliance or regulatory landscape, manual methods or transaction monitoring must be discarded, as risks and threats must be assessed on the go. Sending money and transacting now happens mostly on the go, which is real-time, especially with the advent of fintech solutions, online banking and the like. With these new dynamics of financial transactions, there will be new dynamics for preparing financial crimes. This is enough substantial grounds for the rapid adoption of real-time monitoring.
What is Real-Time Monitoring
Real-time monitoring is a type of fraud detection that detects fraudulent activity as they occur or shortly after. Real-time fraud detection, instead of post-transaction analysis, can detect fraudulent activity in milliseconds. This technique continuously analyses data, transactions, or user behaviours in real-time.
Key Attributes of Real-Time Monitoring
Real-time compliance monitoring entails many important parts to ensure that businesses can efficiently and proactively comply with regulatory standards and internal regulations. These parts are crucial for ensuring compliance, mitigating risks, and responding promptly to any deviations from compliance.
Some key attributes of real-time monitoring include:
1. Continuous Data Monitoring
Real-time monitoring involves the continuous collection, analysis, and assessment of data and activities related to compliance. This includes transactions, user activities, system logs, and other relevant data sources.
2. Rules and Thresholds
Establishing clear and customised rules, thresholds, and criteria for real-time monitoring is essential. These rules define what constitutes compliance or non-compliance and trigger alerts or actions when thresholds are breached.
3. Alerts and Notifications
Real-time monitoring systems generate immediate alerts and notifications when a potential compliance issue or violation is detected. These alerts are directed to compliance officers, management, or relevant personnel who can investigate and take corrective action. For example, an investment banker’s account can be flagged when certain suspicious actions are executed. This real-time alert means relevant stakeholders can make prompt moves and prevent a fraudulent attack.
4. Automation
Real-time monitoring systems often include automated workflows and responses to address compliance issues. This automation can involve halting transactions, blocking user access, or initiating predefined remediation processes.
5. Data Integration
Integration with various data sources is crucial. Real-time monitoring may require access to databases, logs, external data feeds, and APIs to gather comprehensive information for assessment.
Types of Financial Crimes Detectable By Real-Time Monitoring
Aside from money laundering, real-time monitoring can aid in the mitigation of several other financial crimes. Many of these crimes are vices that go hand in hand with money laundering, which makes real-time monitoring a formidable force of compliance solutions.
1. Fraudulent Transactions
Real-time monitoring can identify potentially fraudulent transactions, including credit card fraud, identity theft, and payment fraud. It can flag suspicious patterns such as unusually large transactions, transactions from multiple locations in a short time, or transactions that deviate from a customer’s typical behaviour. Fraudsters also looking to obtain loans using another individual’s account can also be spotted in an instant.
2. Insider Trading
In the world of securities and stock trading, real-time monitoring can help identify suspicious trading activity that may indicate insider trading. Unusual trading volumes or patterns before the release of significant information can be flagged for investigation.
3. Market Manipulation
Real-time monitoring can detect market manipulation schemes, such as “pump and dump” or price manipulation through false information dissemination. It can identify sudden and abnormal price movements or trading volumes.
4. Front-Running
Real-time monitoring in the financial industry can help detect front-running, where a broker or trader executes orders on a security for its account while taking advantage of advanced knowledge of pending orders from its customers.
5. High-frequency trading Abuses
In high-frequency trading, real-time monitoring can spot manipulative or disruptive trading strategies, such as spoofing or layering. These activities involve creating false market signals to deceive other traders.
How Does Real-Time Monitoring Work
Real-time monitoring works by continuously collecting, analysing, and processing data or events as they occur, allowing organisations to receive immediate insights, alerts, and notifications. The process of real-time monitoring typically involves the following steps:
1. Data Collection
Real-time monitoring systems gather data from various sources, including sensors, databases, logs, external feeds, APIs, or user interactions. These sources may produce structured or unstructured data.
2. Data Processing
Raw data is often transformed or normalised to make it compatible with the monitoring system. This may involve data cleaning, filtering, and conversion. Data is processed in real-time or near-real-time, meaning it is analysed as it arrives or is generated, rather than in batch processes that occur at scheduled intervals.
3. Analysis
Real-time monitoring systems often use predefined rules or thresholds to assess incoming data. These rules define what is considered normal or acceptable behaviour and what constitutes an anomaly or issue. Advanced real-time monitoring systems may employ machine learning algorithms and predictive analytics to detect complex patterns, anomalies, or trends in the data. Machine learning models can adapt and learn from historical data to improve accuracy.
4. Alerting and Notification
The monitoring system generates alerts or notifications when it detects a predefined condition or anomaly. These alerts can take various forms, such as emails, SMS messages, dashboard notifications, or automated actions. Alerts may follow predefined escalation paths to ensure that the appropriate personnel or teams are notified based on the severity of the issue.
Bottom Line
Real-time monitoring is a key component of modern compliance management. It helps organisations quickly identify and address compliance issues, reduce the risk of regulatory fines and legal consequences, and demonstrate a commitment to ethical and legal business practices. For consequent future days, real-time monitoring should be considered an integral part of compliance and integrated into workflow systems, Regtech solutions and products.
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