Transaction Monitoring System (TMS)
Definition
An automated system that screens transaction data against a library of typologies and thresholds to generate alerts for potential money laundering. A key component of an AML programme. The system must be calibrated to the institution's risk profile, and every alert must be reviewed and documented by a qualified analyst.
- Function
- Screens transactions against typologies and thresholds
- Output
- Alerts for potential money laundering
- Context
- Core component of an AML programme
- Calibration requirement
- Matched to the institution's risk profile
- Review requirement
- Every alert documented by a qualified analyst
Common questions
Why must every TMS alert be reviewed by a human analyst?+
Automated systems generate false positives at scale, so regulatory expectations require documented analyst judgment before an alert is escalated into a suspicious activity report or dismissed as a false positive.
What happens if a TMS is not calibrated to the institution's actual risk profile?+
It either misses genuine laundering typologies relevant to that institution's customer base or floods analysts with irrelevant alerts, both of which examiners flag as compliance weaknesses during an AML audit.
Related terms
- Beneficial Ownership
- The natural person(s) who ultimately own or control a legal entity or arrangement, or on whose behalf a transaction is conducted. FATF...
- Customer Due Diligence (CDD)
- The process of identifying and verifying the identity of a customer and their beneficial owner, understanding the purpose of the business relationship,...
- FATF Recommendations
- The 40 international standards issued by the Financial Action Task Force that set out the measures countries should implement to prevent money...
- Mutual Evaluation Report (MER)
- An assessment of a country's compliance with the FATF Recommendations, conducted by FATF-style regional bodies or by FATF itself. Published publicly. Identifies...
- Suspicious Activity Report (SAR)
- A disclosure filed with the financial intelligence unit when a reporting entity knows, suspects, or has reasonable grounds to suspect that a...