Ongoing Monitoring for AML Compliance

In 2019, an elaborate Ponzi scheme in South Africa, Bitcoin Wallet, swindled investors out of an estimated R2 billion. Promising astronomical returns, the scheme targeted unsuspecting individuals with little regulatory oversight. Despite several red flags, the lack of robust ongoing monitoring meant that warning signs were missed, allowing the fraud to grow unchecked.

This incident underscores a harsh reality: financial crimes in Africa are on the rise, with the continent losing an estimated $88.6 billion annually to illicit financial flows (IFFs). For businesses operating in such an environment, relying solely on initial due diligence is no longer sufficient.

What is Ongoing Monitoring?

Ongoing monitoring, or continuous monitoring, is the process of regularly reviewing customer data and transactions to detect potential financial crimes and ensure compliance with evolving regulations. Think of it as a "health check" for your customer relationships—one that never ends.

Unlike a one-time verification during onboarding, ongoing monitoring ensures that businesses continually assess risks throughout the lifecycle of a customer relationship. This includes tracking transactions, updating customer profiles, and identifying suspicious behaviour.

As recommended by the Financial Action Task Force (FATF), this process involves collecting and verifying key information, such as transaction patterns, to ensure alignment with a customer's risk profile. For businesses, this not only helps mitigate risks but also demonstrates a proactive approach to regulatory compliance.

What is the Goal of Ongoing Monitoring?

The primary goal of ongoing monitoring is to keep businesses compliant with AML and Countering the Financing of Terrorism (CFT) laws. But beyond compliance, it serves three critical business objectives:

1. Regulatory Compliance: Staying updated with evolving AML regulations and avoiding hefty fines for non-compliance.
2. Operational Agility: Regularly validating customer data ensures smoother operations and better risk management.
3. Enhanced Security: Detecting suspicious activities early minimises exposure to fraud, safeguarding both the business and its customers.

With Smile ID’s AML Check Solution, companies can automate this process, ensuring continuous vigilance. From screening users against 1,100 global and African sanctions lists to monitoring adverse media in real time, Smile ID empowers businesses to combat financial crime proactively.

The Key Components of Ongoing Monitoring

Ongoing monitoring serves as the backbone of a robust AML compliance framework, encompassing a series of interconnected processes that ensure businesses stay one step ahead of financial criminals. Each component addresses a specific facet of risk management, collectively building a comprehensive defence against money laundering, fraud, and terrorist financing. Here’s a closer look:

1. Transaction Monitoring

At the heart of ongoing monitoring lies the continuous review of customer transactions. By analysing the nature, volume, and patterns of financial activities, businesses can determine whether transactions align with the customer’s known profile and stated objectives. For instance, unusually large or frequent cash deposits that deviate from a customer’s historical behaviour could indicate potential laundering. Advanced tools, like Smile ID’s real-time fraud detection systems, enable businesses to flag and investigate these anomalies promptly.

2. Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)

Monitoring doesn’t end with onboarding. Regular updates to customer profiles ensure that businesses maintain an accurate understanding of who they are dealing with.

• CDD involves routine verification of customer data and transactional behaviour to ensure ongoing legitimacy.
• EDD applies to higher-risk customers or transactions, requiring deeper scrutiny into aspects like source of funds or geographic connections to high-risk regions.

By layering these due diligence processes, companies can dynamically adjust their risk management strategies as customer circumstances evolve.

Related reading: Understanding the Difference Between CDD and EDD in KYC Compliance

3. Ultimate Beneficial Ownership (UBO)

Knowing the true beneficiaries behind an account is critical. UBO monitoring identifies individuals or entities that directly or indirectly control an organisation, ensuring transparency around the source of funds. For example, in high-risk industries like real estate or cryptocurrency, where ownership structures can be deliberately obscured, maintaining an up-to-date understanding of UBO is essential.

4. Sanctions Screening

Regular checks against global and regional sanctions lists help businesses avoid dealings with individuals, entities, or countries subject to financial or trade restrictions. These lists, updated frequently by governments and international organisations, flag high-risk individuals such as terrorists or criminal enterprises. Sanctions screening ensures that businesses stay compliant while protecting their reputation.

5. Politically Exposed Persons (PEP) Checks

Government officials or individuals with close ties to political power present unique risks due to their potential involvement in corruption or embezzlement. Ongoing PEP checks ensure that businesses apply the appropriate level of scrutiny to transactions and accounts linked to politically exposed persons.

6. Adverse Media Monitoring

Continuous scanning of global news, publications, and other media for unfavourable mentions of clients or their associates is another vital component. Whether it’s a report of financial impropriety or allegations of fraud, adverse media monitoring enables businesses to react quickly, updating risk assessments or escalating due diligence efforts as needed.

By integrating tools that automate these processes, businesses not only reduce the burden of manual checks but also enhance the accuracy and efficiency of their AML compliance efforts. 

The Ongoing Monitoring Process for AML Vigilance

Ongoing monitoring isn’t a static process; it’s a dynamic and iterative approach to identifying and mitigating risks throughout the customer lifecycle. By embedding vigilance into every step, businesses can stay ahead of emerging threats while ensuring regulatory compliance. Here’s how this process works:

1. Risk Assessment: Setting the Foundation

The first step in effective monitoring is to evaluate potential risks associated with customers, transactions, and business activities. This involves analysing data to uncover factors such as geographic exposure, industry vulnerabilities, or transaction patterns indicative of money laundering or fraud. A robust risk assessment establishes a baseline for determining the frequency and intensity of monitoring efforts.

2. Internal Controls: Building the Defense

Internal controls are the operational backbone of any ongoing monitoring framework. This includes:

• Implementing identity verification systems to validate customer details before initiating transactions.
• Establishing policies for transaction monitoring and flagging suspicious activity.
• Creating escalation procedures for investigating anomalies promptly.

By automating these controls, businesses can streamline their compliance efforts while maintaining consistency.

3. Transaction Monitoring: Watching for Red Flags

Real-time monitoring of financial activities is a key component of staying compliant. Businesses must scrutinise transaction data to detect discrepancies or deviations from expected patterns. For instance, an unexpected increase in cross-border transfers from a low-risk account could trigger further investigation.

4. Reporting Suspicious Activities: Raising the Alarm

When suspicious activities are identified, they must be documented and reported to the relevant authorities through Suspicious Activity Reports (SARs). Filing these reports in a timely manner ensures that potential criminal behaviour is flagged for investigation.

5. Audits and Reviews: Ensuring Integrity

Regular internal and external audits help businesses evaluate the effectiveness of their monitoring frameworks. These reviews identify gaps in controls, test compliance against evolving regulations, and uncover areas for improvement. Audits also validate the accuracy and relevance of customer data used in risk assessments.

6. Continuous Training: Empowering the Team

Employee training is essential to keep teams informed about their roles in AML compliance. By staying updated on regulatory changes, best practices, and the latest criminal tactics, employees can contribute to a proactive compliance culture.

What Signals an Ineffective Monitoring Process?

A poorly implemented ongoing monitoring system can manifest in several ways, such as:

• Inadequate responses to law enforcement inquiries.
• Ignoring red flags from suspicious activity monitoring.
• Failing to update customer information and risk profiles.
• Using outdated transaction screening methods that don’t account for new threats.

These gaps not only expose businesses to financial crime but can also result in hefty penalties for non-compliance.

For organizations operating in high-risk industries or regions, integrating advanced tools and conducting frequent reviews are non-negotiable. Solutions like Smile ID’s AML Check can simplify this complex process, enabling businesses to detect risks early, stay compliant, and focus on growth.

Ongoing Monitoring Best Practices for AML Compliance

As mentioned in previous sections: To effectively combat financial crime, businesses must implement a proactive and comprehensive approach to ongoing monitoring. Here are best practices that can ensure your monitoring systems are both effective and sustainable:

1. Adopt a Risk-Based Monitoring Strategy

Rather than applying the same level of scrutiny to all clients, businesses should tailor their efforts based on the assessed risk of each customer. Key practices include:

• Dynamic Risk Scoring: Continuously update risk profiles using customer activity data, changes in circumstances, or emerging regulatory guidelines.
• Focus on High-Risk Areas: Prioritise resources for transactions or clients with elevated risks, such as cross-border payments or industries susceptible to financial crimes.

2. Integrate Advanced Technology

Technology is essential for scaling compliance efforts while maintaining accuracy.

• Machine Learning & AI: Leverage algorithms that learn from historical patterns to detect unusual behaviours.
• Automated Screening Tools: Use tools that monitor sanctions lists, adverse media, and politically exposed persons (PEPs) databases in real time to minimise manual oversight.
• Behavioural Analytics: Incorporate systems that analyse customer behaviour to spot deviations from expected norms.

3. Develop a Strong Documentation Framework

Documentation should not be an afterthought but an integral part of your monitoring process.

• Real-Time Record-Keeping: Maintain an audit trail of decisions, risk assessments, and monitoring activities.
• Regulatory Alignment: Ensure documentation aligns with global AML and CTF requirements for compliance reporting.
• Automated Reporting: Use tools that generate detailed compliance reports for internal audits and regulatory filings.

4. Conduct Regular Policy and System Reviews

The effectiveness of your ongoing monitoring depends on the continuous improvement of processes and systems.

• Update Procedures: Align policies with the latest AML regulations and industry best practices.
• Test System Resilience: Simulate risk scenarios to identify gaps in transaction monitoring or data accuracy.
• Feedback Loops: Use insights from audits and employee feedback to refine your compliance framework.

5. Invest in Continuous Training

Equip your team with the knowledge and skills required to implement AML practices effectively.

• Role-Specific Training: Tailor training programs to the roles and responsibilities of employees.
• Regulation Updates: Educate staff on new compliance requirements or trends in financial crime.
• Scenario-Based Learning: Provide practical training on identifying and reporting suspicious activities.

6. Ensure Scalability and Flexibility

As businesses grow, monitoring systems must adapt to increasing volumes and evolving threats.

• Scalable Platforms: Choose monitoring solutions that accommodate growing customer data and transaction volumes.
• Modular Systems: Implement tools that can be upgraded with new features or integrations to meet future needs.

Key Reasons Companies Implement Ongoing Monitoring Systems

While traditional customer due diligence (CDD) processes provide an essential foundation for compliance, ongoing monitoring systems take this a step further by enabling dynamic, real-time oversight. Here’s why businesses find them indispensable:

1. Adapting to Evolving Customer Risks

Customer profiles are not static. A low-risk customer today could turn high-risk tomorrow due to changes such as becoming a Politically Exposed Person (PEP) or engaging in transactions linked to high-risk jurisdictions. Ongoing monitoring ensures businesses can react promptly to these shifts, safeguarding themselves against unforeseen liabilities.

2. Strengthening Fraud Detection Capabilities

Fraud schemes are increasingly sophisticated, often evolving faster than static compliance measures can handle. Ongoing monitoring provides the agility to detect suspicious patterns, such as unusual transaction sizes, account activities, or geographic inconsistencies, before they escalate into significant financial crimes.

3. Enhancing Regulatory Compliance

Regulatory bodies worldwide emphasise continuous oversight as part of the AML and Countering the Financing of Terrorism (CFT) frameworks. Ongoing monitoring systems allow businesses to meet these requirements, minimising the risk of penalties or operational restrictions.

Related Reading: Understanding Kenya's Grey Listing by FATF: A Call for Strengthening KYC Procedures

4. Improving Business Confidence and Credibility

Businesses that implement robust ongoing monitoring systems demonstrate a commitment to ethical practices. This fosters trust with clients, partners, and regulatory bodies, enhancing overall market credibility.

5. Reducing Operational Costs through Automation

Manual monitoring processes can be labour-intensive and error-prone. Automated systems not only enhance accuracy but also reduce the time and resources needed to identify and address compliance issues.

By focusing on these aspects, companies can create an environment of proactive risk management, positioning themselves to operate effectively in an increasingly regulated global market.

The Drawbacks of Ongoing Monitoring

Despite its benefits, implementing and maintaining an ongoing monitoring system is not without challenges. These drawbacks often stem from the complexity of the process and the resources required for effective execution:

1. High Implementation Costs

Deploying an effective monitoring system often requires significant investment in technology, training, and infrastructure. For smaller businesses, this can be a major financial hurdle, deterring them from adopting these essential tools.

2. Overwhelming False Positives

Automated systems can generate a high volume of alerts, many of which may not indicate genuine threats. This phenomenon, known as false positives, can drain compliance team resources, delay legitimate customer transactions, and strain customer relationships.

3. Regulatory and Jurisdictional Complexity

The global nature of business today means companies must navigate varying AML regulations across multiple jurisdictions. Keeping up with constant changes and ensuring compliance everywhere adds a layer of operational complexity.

4. Data Management Issues

The quality and accuracy of data directly impact the effectiveness of monitoring systems. Inconsistent or incomplete data can lead to missed risks or incorrect alerts, undermining the system's reliability.

5. Risk of Over-Reliance on Technology

While technology is a powerful enabler, over-reliance on automated systems without adequate human oversight can lead to gaps in fraud detection. Machine learning models may not fully understand nuanced behaviours that human expertise can identify.

6. Evolving Threats

As monitoring systems become more sophisticated, so do the tactics used by financial criminals. Staying ahead requires continuous updates to software and strategies, which can strain resources and require constant vigilance.

Addressing these drawbacks requires a balanced approach, combining advanced technology with well-trained personnel and regular process evaluations. This synergy helps businesses maximise the benefits of ongoing monitoring while minimising its challenges.

🔎Smile ID’s AML Check Solution In Focus

Businesses in Africa face unique challenges when it comes to implementing effective ongoing monitoring systems for AML compliance. Limited access to localised data, rapidly evolving regulations, and the sheer scale of financial crime can make compliance seem daunting. This is where Smile ID’s AML Check Solution excels, offering a comprehensive, automated, and reliable tool built to address these hurdles and empower businesses to combat financial crime efficiently.

See it in action: 

Built for Global and Local Compliance

Smile ID’s AML Check screens users against over 1,100 global and African sanctions and PEP (Politically Exposed Person) lists, as well as more than 70,000 adverse media sources. This dual focus ensures businesses meet both international AML standards and address the unique risks and regulatory needs across African markets.

A Seamless Process, Start to Finish

Smile ID’s AML Check simplifies compliance with a user-friendly two-step process:

• Collecting User Information
  Businesses can initiate checks with just a name and nationality. Our system supports multiple languages—including French, Arabic, and Chinese—enabling businesses to seamlessly verify users across diverse regions.
• Instant Risk Assessments
  In seconds, Smile ID’s system provides a comprehensive risk profile for each query. This includes:
  • PEP and Sanctions List Matching
  • Adverse Media Screening
  • News Media Monitoring
• These insights enable businesses to identify suspicious activities and prevent potential money laundering schemes before they escalate.

Proactive Monitoring, Every Step of the Way

Smile ID goes beyond one-time checks. Automated monitoring for 12 months ensures that businesses stay informed of any new risks associated with previously queried names. With global coverage and trusted data sources like the critical OFAC list, our solution ensures ongoing vigilance against emerging threats.

Solving Common Challenges

Smile ID’s AML Check directly addresses the common challenges of ongoing monitoring:

• Reducing False Positives: By leveraging advanced algorithms, our solution minimises false alerts, allowing compliance teams to focus their resources on genuine risks.
• Streamlining Data Quality: Our system integrates accurate, validated data from global and local sources, ensuring effective analysis without overwhelming businesses.
• Keeping Up with Regulations: Automated updates align Smile ID’s solution with ever-changing AML/CFT standards, helping businesses maintain compliance effortlessly.
• Accessible for All: The intuitive design and multi-language support make it easy for businesses of all sizes and industries to leverage the tool effectively.

AML Regulations and Requirements for Ongoing Monitoring

Ongoing monitoring plays a pivotal role in combating financial crime and ensuring compliance. Globally, many regulatory frameworks emphasise its importance:

1. Kenya: The Proceeds of Crimes and Anti-Money Laundering Act (POCAMLA) mandates financial institutions to report transactions exceeding USD 15,000 and penalises violations with significant fines. This law also compels legal professionals to report suspicious activities and aligns with international standards​

2. Nigeria: Nigeria’s Money Laundering (Prevention and Prohibition) Act, 2022, requires designated non-financial institutions and financial institutions to report transactions above prescribed thresholds and continuously assess client risks in alignment with FATF recommendations​

3. South Africa: The Financial Intelligence Centre Act (FICA) enforces ongoing due diligence, mandating accountable institutions to update customer records and conduct regular transaction scrutiny to detect irregularities​

4. United Kingdom: The Money Laundering Regulations (2017) require firms to monitor transactions continuously and update customer profiles to detect inconsistencies.
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Future of Ongoing Monitoring in AML Compliance

The fight against financial crime evolves rapidly, requiring businesses to adapt. Technologies like blockchain and AI are revolutionising AML compliance. Blockchain enhances transaction transparency, while AI enables real-time detection of suspicious patterns, helping businesses prevent fraud proactively.

Looking ahead, collaboration between businesses, regulatory bodies, and technology providers will shape the AML compliance landscape. This requires a blend of advanced technology and human expertise.

Strengthening Your Compliance Framework

Ongoing monitoring isn't just a regulatory obligation—it's a commitment to secure operations and protect customers. By leveraging tools like Smile ID's AML Check Solution, businesses can align with global standards while staying ahead of emerging risks.

Ready to future-proof your compliance framework? Start by booking a demo today.