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Transaction Screening Explained

- 10 minute read

In a world where financial transactions are occurring more rapidly and at greater volumes than ever before, robust transaction screening has never been more vital for the financial sector. 

But what is transaction screening at its core? It is an essential safeguard within the financial industry, protecting organisations against financial crime including money laundering and terrorist financing. 

At Edenred Payment Solutions, technology is an important part of our work, and to ensure an effective transaction screening service and payment screening, we continue to improve our tools for heightened security for the institutions we work with.


Understanding Transaction Screening

Transaction screening contributes to a firm’s layered, risk-based approach in its anti-money laundering and counter-terrorist financing (AML/CFT) framework.

Along with customer identification and verification, transaction screening and regulatory reporting, transaction screening ensures financial institutions undergo robust due diligence and compliance processes.

By analysing transactions for prohibited or suspicious activity before they are approved, transaction screening will stop a transaction if it is found to be risky or illicit. 

Transaction screening filters out an individual or organisation to identify suspicious behaviour outside of risk appetite.


The Importance of Transaction Screening

Transaction screening enables financial institutions to undertake real-time monitoring to detect suspicious transactions - making it a critical role in preventing risky activity. 

It plays a crucial part in finance and banking, ensuring compliance with anti-money laundering regulations and detecting potential fraudulent transactions. 

By analysing incoming and outgoing transactions and payments, payment screening enables financial institutions to verify the legitimacy of payment credentials and information, as well as identify and escalate any suspicious activities for further investigation.

As financial crimes continue to rise in a digital payment world, transaction screening provides customers and financial institutions with a safety net.


Transaction Screening vs. Transaction Monitoring

What is the difference between transaction screening vs transaction monitoring? 

Transaction screening looks at individual transactions before they are approved to stop risky activity taking place. For example, any transaction attempts for prohibited goods or to a sanctioned entity will be denied.

Transaction screening is usually done during specific moments in the customer lifecycle, such as the onboarding process or when large and excessive transactions are attempted. Transaction screening aims to unearth details and the beginning of transaction patterns, primarily focussing on identifying entities or individuals that are sanctioned, politically exposed, or subject to legal restrictions.

However, transaction monitoring usually involves ongoing analysis of a customer’s entire transaction history and behaviour over time to gain a comprehensive view of their financial activities. 

It is important to consider screening vs transaction monitoring when creating an effective anti-money laundering and counter-terrorist financing (AML/CFT) framework.


Industry Trends

In a digital world, the level of fraudulent activities within real-time payments continues to rise, meaning financial institutions need to address these threats efficiently and quickly when they occur.

An effective transaction screening process therefore maintains compliance and prevents financial crimes. Payment screening and monitoring benefits include:

  • Real-time fraud detection
  • Improved compliance
  • Enhanced security for transactions
  • Efficient risk management
  • Reduced costs associated with financial crimes
  • Improved efficiency in operations

Financial crime is in a constant state of flux - mirroring the rapid evolutions made in the financial ecosystem itself. And as digital transformation rapidly sweeps across sectors, new methods of money laundering and other financial crimes have emerged, allowing illicit funds to spread faster than ever. 

Within a digital economy, criminals can exploit international disparities in regulatory environments and enforcement capabilities.

Fintechs and digital banks need robust systems to combat the additional cyber threats in a digital age. Creation of blockchain technology and cryptocurrencies have provided new channels for money laundering. 

To ensure institutions adapt and thrive in a digital environment, they should:

  • Embrace technology
  • Implement real-time and risk-based transaction monitoring
  • Ensure robust customer due diligence (CDD) and Know Your Customer (KYC) procedures
  • Foster a culture of compliance
  • Stay abreast of regulations
  • Facilitate regular staff training 

Fraudsters are also becoming increasingly sophisticated in their tactics, utilising AI and machine learning to conduct large-scale operations, and organisations need to adapt. 

The threat landscape continues to become more intense and complex, which is why financial institutions need to be technology-driven and proactive in their approach to keep on top of the problem - a belief held by regulatory bodies across the globe.

Regulatory Requirements

Financial services organisations are obliged to comply with international sanctions and embargoes imposed by governments and regulatory bodies, such as the United Nations, the European Union, the Financial Intelligence Unit and the Office of Foreign Assets Control (OFAC), reporting suspicious activity to the appropriate body through investigating red flags and alerts. 

These embargoes and sanctions prevent illegal activities, such as money laundering, terrorism financing and the proliferation of weapons of mass destruction.

The Transaction Screening Process

How does transaction screening work?

Step 1: Initiation of the transaction

During the initiation of a financial transaction, relevant transaction details will be provided to the financial institution. These details are used to generate a standardised message which is then transmitted through secure channels to ensure the confidentiality and integrity of the data.

Step 2: Transaction screening initiation

When a transaction message has been received, a transaction screening process is triggered whereby financial institutions can use screening software to examine the transaction’s details.

The screening will include cross-checking parties and elements included in the transaction against various watchlists, generating alerts against specific attributes such as name and address of ordering entity and beneficiaries, BIC code elements, currency types, dual-use goods, and countries.

Step 3: Alert review and investigation

A team of financial crime analysts, governed by the Money Laundering Reporting Officer will take over to handle the alert, to review and investigate the generated alert(s).

The teams, with the help of integrated case management systems assess the validity of the flagged transaction by evaluating potential risks associated.

Step 4: Blocking or releasing transactions

An analyst will either block or release an alerted transaction. However, if a scenario is confirmed as suspicious , the reviewer will notify the necessary authority depending on the country the financial institution is located in.

Step 5: Documentation and reporting

All actions within the payment screening process must be thoroughly documented, creating a detailed record of the process and alerts. 

These records are essential to compliance reporting, serving as an audit trail for internal and external inspections.

Step 6: Ongoing testing

The transaction screening process shouldn’t be thought of as a one-time effort. To ensure effectiveness over time, it requires regular testing and fine-tuning. 

Systematic assessments and checks are needed to identify areas of adjustment and improvement in the payment screening procedure. Utilise ongoing testing to stay ahead of evolving risks and compliance requirements.

Edenred's Bespoke Solutions for Transaction Screening

Edenred Payment Solutions, as a regulated entity is required to undertake transaction screening of all its programmes. Its clients known as “Agents” may also do some level of transaction screening, but the ultimate responsibility lies with Edenred Payment Solutions. 

Our real-time fraud prevention detects, alerts and mitigates fraudulent or suspicious transactions that occur within the Mastercard network and banking flows such as Faster Payments.

Edenred Payment Solutions also carries out screening and ongoing monitoring on behalf of its clients and will inform the clients of any Politically Exposed Persons (PEPs) identified and irregular and unusual suspicious activity for the client to investigate and take action. 

Our in-house financial crime services offer proactive support against fraudulent transactions. Our alerting and transactions monitoring tools help to identify suspicious activity, enabling clients to implement appropriate mitigation which can include user offboarding and account closures.

PEPs and Unusual Activity Monitoring

Transaction screening ensures compliance with international regulations and maintains a strong risk management framework. 

The payment screening process evaluates financial transactions against predetermined criteria, including sanctions lists, PEPs and other high-risk countries to prevent financial institutions from engaging with prohibited parties.

Edenred Payment Solutions screens for PEPs and monitors for irregular activities through robust global processing, which can handle high volumes of transactions daily without any friction. Our transaction monitoring capabilities detect any suspicious or unusual activity, helping end users protect their funds.

Best Practices for Implementing Transaction Screening

There are few ways in which financial institutes can integrate and optimise transaction screening within their operations: 

Use advanced technology

The complexity and sheer volume of financial transactions today mean that manual payment screening is no longer feasible. Financial institutions should therefore think about investing in advanced technology like machine learning and AI to automate the screening process.  

These technologies are able to analyse large amounts of data in real-time and flag any suspicious transactions for further investigation. Using these advanced technologies reduce the risk of human error and improve the efficiency of the screening process. 

Implement a risk-based approach

Implementing a risk-based approach to ensure transaction screening best practice is vital.

Financial institutions should assess the risk associated with each customer and transaction, tailoring their screening processes accordingly. For example, high-risk customers and transactions should undergo more rigorous screening and monitoring compared to low-risk ones, allowing financial institutions to allocate resources more efficiently, focussing on the areas that pose the highest risk. 

Integrate transaction screening with other systems

For the most effective output, transaction screening should be integrated with other systems such as transaction monitoring and customer relationship management (CRM) to provide a full picture of customer activity. 

Financial institutions will be able to identify inconsistencies or red flags in customer behaviour and take appropriate action. This will create a more efficient and seamless process for customers and employees alike.

Regularly update screening lists

Ongoing monitoring and regular updates to screening protocols are important to ensure transaction screening  is used to the best of its ability. 

Sanctions lists and other screening lists change constantly, and financial institutions must use the most up-to-date versions to stay compliant. Firms therefore need to regularly monitor and update screening lists so that changes and new additions are accounted for.

If an organisation doesn’t update screening lists, this could mean potential compliance issues and missed red flags. It is therefore important to have a process in place to regularly review and update screening lists.

Conduct ongoing training and education

A knowledgeable and well-trained team is needed to oversee effective transaction screening service. 

Ongoing training and education for employees investment is needed to keep teams up-to-date with the latest best practices and regulations. 

Regular training and education will help employees prevent potential compliance issues by being extra vigilant. Training should cover:

  • Identifying red flags
  • Understanding the screening process
  • Using screening technology effectively

Challenges of Transaction Screening

Of course, as with every process, there are challenges that can arise. With transaction screening, challenges related to poorly processed data or outdated systems will be the most likely. These challenges can include:

  • Out-of-date sanctions data: If a firm’s data is not synced with regulatory updates, they may permit illicit transactions or stop allowable ones
  • Unclear alert data: Analysts can face alerts that don’t necessarily explain the data that triggered them, leaving them without the necessary context to perform an adequate investigation. This could mean the failure to recognise transactions that should be stopped - or too much time spent on low-risk activity
  • Backlogs caused by false positives: If a system generates too many false positives, it can congest queues, taking away valuable analyst time from true positives, equating to less accurate screening and analyst burnout

In Summary

Transaction screening is a critical compliance measure for financial services institutions, helping to protect them from the financial and reputational risks that come with non-compliance. 

The transaction screening process:

  • Helps mitigate risks and ensure regulatory compliance
  • Utilises data and technology for efficient and accurate screening
  • Enhances decision-making and protects organisational reputation

With robust payment screening processes implemented and leveraging advanced technology, financial organisations can mitigate risks and adhere to the stringent regulatory landscape governing the industry.


What is transaction screening? 

Payment screening is an essential safeguard within the financial industry, protecting organisations against financial crime including money laundering and terrorist financing. 

Why is transaction screening important?

It plays a crucial part in finance and banking, ensuring compliance with anti-money laundering regulations and detecting potential fraudulent transactions. 

What is the difference between transaction screening and monitoring?  

Transaction screening verifies customer identity, screening their transactions on an ongoing basis, whereas transaction monitoring focuses on observing customer transactions in real-time or retroactively to spot trends and red flags.


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