Transaction monitoring is the ongoing scrutiny of transactions undertaken throughout a business relationship to ensure that activity is consistent with the firm’s knowledge of the customer, their business and risk profile, and to identify unusual or suspicious patterns. In the UK it is a specific component of the ongoing-monitoring duty imposed by Regulation 28(11) of the Money Laundering Regulations 2017, which applies to all firms in the regulated sector.
Why transaction monitoring matters
Static onboarding checks alone cannot detect laundering, because criminal behaviour usually reveals itself through patterns of activity over time. Transaction monitoring is the mechanism by which a firm spots structuring, unexplained high-value flows, transactions inconsistent with a stated business model, or links to high-risk jurisdictions. It is the primary source of the suspicions that lead to Suspicious Activity Reports (SARs) filed with the National Crime Agency under the Proceeds of Crime Act 2002.
What effective monitoring requires
The MLRs 2017 do not mandate a specific technology, but firms must have systems proportionate to their risk. In practice this means automated rules and scenarios tuned to the firm’s risk assessment, alert investigation by trained staff, and clear escalation to the MLRO. Poorly calibrated systems, generating either too few alerts or unmanageable volumes of false positives, are a recurring FCA criticism. Monitoring must also feed back into keeping CDD information current.
Who it applies to
All regulated-sector firms under the MLRs 2017, with monitoring designed, operated and reviewed by financial-crime, operations and compliance teams under MLRO oversight.