On 20 October 2021, the Association for Financial Markets in Europe (AFME) published a paper, Anti-Money Laundering Transaction Monitoring in the Markets Sector.

Firms have already established Anti-Financial Crime programmes designed to detect suspicion of money laundering, supported by anti-money laundering (AML) transaction monitoring (TM). This has been a regulatory requirement for financial services firms across Europe for 20 years. A wide range of software products have evolved since but do not work as efficiently as they should for retail and business banking, and have demonstrated limited effectiveness in the markets sector on a standalone basis. This is due to the significant volumes of rapidly executed high-value transactions creating a challenge in identifying anything unusual and the lack of visibility that firms have over clients and their activity.

The AFME paper is based on survey results and interviews with banking firms, regulators, law enforcement agencies and financial intelligence units across Europe. It identifies the following emerging themes for the future of AML TM in Europe’s markets sector:

  • Current AML TM systems are ineffective in the markets sector.
  • A small number of firms have demonstrated that it is possible to monitor effectively through the use of a hybrid approach blending technology tooling and automated techniques with highly skilled manual processes.
  • The key to developing analytical TM solutions in the markets sector is using highly skilled teams that understand the complex domain and technical methods.
  • More collaboration between private and public sector would be beneficial.
  • Greater effectiveness and cost efficiencies would be achieved through partial convergence of market abuse surveillance with AML TM.

The AFME paper looks at the use of data, technology and enhanced analytics to drive improvements and build more sufficient solutions. It also covers the process surrounding the submission of suspicious activity reports and explores the advantages to the sector in establishing greater collaboration between private and public sector bodies.

The AFME paper notes that there are no quick fix solutions to implement a standard set of rules in an automated TM system, rather investments in skills and technology are needed over a sustained period and using a hybrid approach of multiple techniques is likely to yield the best results.

As an initial roadmap to support improved monitoring for firms, the AFME paper discusses the following steps:

  • Get the basics right including garnering senior management support.
  • Uplift technology capacity.
  • Upskill the team.
  • Optimise automated TM systems.
  • Perform intelligence-led investigations.
  • Share knowledge and data with other market participants.