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2. Transaction Monitoring

Effective from 8/9/2021

An effective TM program enables LFIs to detect, investigate, and report suspicious transactions, in compliance with the UAE’s legal and regulatory framework, and to ensure that the institutions’ customers and transactions remain within their risk appetite. Effective TM therefore depends critically on information obtained through the application of customer due diligence (“CDD”)/know your customer (“KYC”) measures, including but not limited to information regarding the types of transactions in which the customer would normally be expected to engage.

Obtaining a sufficient understanding of its customers and the nature and purpose of the customer relationship, together with the ongoing analysis of actual customer behavior and the behavior of relevant peer groups, allows the LFI to develop a baseline of normal or expected activity for the customer, against which unusual or potentially suspicious transactions can be identified. TM compliance personnel should escalate for priority remediation any identified omissions or inaccuracies in relevant customer or beneficial ownership information or gaps or data quality issues in required transaction or payment message fields.

An effective TM program consists of the following core elements:

 •A well-calibrated risk-based framework: The risks LFIs face are dynamic and the transactions they carry out may be varied and high in volume. LFIs should therefore review and enhance their TM frameworks regularly and upon the occurrence of specified “trigger events,” such as material changes in the LFI’s business or risk profile or its legal and regulatory environment, to ensure that they remain tailored to the institution’s financial crime risks. Incorporating feedback from the personnel handling the alerts to the TM system also helps in better calibration and tuning.
 
 •Robust training and risk awareness: To ensure proper functioning and implementation of their TM programs, LFIs should ensure that personnel with TM responsibilities have adequate experience and expertise and receive role-specific training on the institution’s TM policies, procedures, and risks.
 
 •Meaningful integration into the AML/CFT program: LFIs should ensure that their TM systems and frameworks reinforce, and are reinforced by, the wider AML/CFT control environment of which they are a part. An effective TM program depends on the quality and completeness of data drawn from the LFI’s customer and transactional systems and databases. In tandem, the outcomes of TM should inform the LFI’s understanding and management of its financial crime risks, including by prompting off-cycle customer reviews and the application of enhanced scrutiny or additional controls to higher-risk customers or transactions.
 
 •Active oversight: The LFIs’ board and senior management should take an active role in overseeing the performance of their TM programs and the ongoing enhancement of TM systems on the basis of the institution’s risks. Where the outcomes of TM are compromised by factors such as inappropriate calibration, process inefficiencies, staff issues, or system failures, it is necessary that the board (or a board-designated committee) and senior management be made aware of these issues in a timely manner so as to ensure that they are promptly and adequately remediated. The board and senior management should also communicate clear risk appetites within their institutions and set a strong tone from the top that the prevention, detection, and reporting of illegal or suspicious transactions are a priority. A quality assurance process should also play a crucial part in the TM program, by validating the review from accuracy and detail perspective. Any changes in the transaction codes or changes in the core banking system should be approved by senior management.