The transaction monitoring market expected to grow at a CAGR of 14.5% during the forecast period 2021 - 2026. Identifying suspicious transactions and analysis of a customer's transactions is the key property of transaction monitoring. Further to improve risk management and reduce false positives, AML (Anti-Money Laundering) automation is the only way solution for all businesses in the sector and is an upcoming trend for the market. Firms are looking to implement intelligent in AML and able to process big data in real-time if necessary; build predictive modeling to assess the future risk of their customers, and even use machine learning (ML) to massively speed up human subject-matter expertise. Regulators, too, are looking to artificial intelligence and machine-based learning (ML) for help with supervision, analytics, reporting, and building money-laundering scenarios that catch crime quickly or prevent it altogether.
- Adoption of KYT (Know Your Transactions) to identify potentially risky transactions is driving the market. The aim of KYT is to identify risky transactions and the underlying unusual behavior to detect money laundering and fraud transaction. With accurate and relevant information directly through the original data sources would be necessary to achieve with the help of an automated concentration of transactions. Examples of such data are contracts, customs documents, or invoices for purchases. Additionally, IP addresses for online banking or the use of GeoData could provide information about the origin of the payment.
- Further, on average, 99.85% of the credit card transactions processed every day are legit; therefore, detecting fraud becomes tedious. KYT maximizes the number of anomalies detected and can detect the fraud credit card transaction. In August 2019, Telindus announced to come up with a KYT concept leveraging the power of AI, and the solution aims at responding to the AML and PSD2 regulations.
- Increasing stringent regulatory compliance drives the market. In a rapidly changing regulatory environment, in recent years, Anti-Money Laundering and Sanctions regulatory compliance have been a focus area of attention for regulators worldwide. In April 2020, Blockchain investigations agency Chainalysis has added help for ten extra ERC-20 tokens, increasing the attain of its anti-money laundering monitoring service. The additions carry Chainalysis’s compliance, regulatory, and monitoring software program. The eagle-eyed AML software program is common amongst crypto exchanges going through stringent international money-laundering safeguards. U.S. trade Bittrex started utilizing the Chainalysis KYT software program to monitor suspicious transactions, becoming a member of Binance. With increasing regulator compliance, the demand for transaction monitoring software is expected to grow significantly.
- Further, the impact of COVID-19 pandemic supports the market growth as the financial fraud cases tends to rise, with increasing fraud transaction for the COVID-19 donation. These instances signify the need for transaction monitoring. At First Abu Dhabi Bank (FAB), they effectively track record in protecting their customers from fraud and in adopting global best practices in their banking operations during a pandemic. In recent weeks of April 2020, the number of fraud cases globally has increased sharply, where some security firms stating by as much as 600 percent rate, as criminals seek to use the COVID-19 outbreak to open new lines of attack.
- Further, banks should align their transaction-monitoring systems with their highest risks and weigh the efficiency ratings of alerts their systems have historically produced. Regulators such as the FCA have released guidance to firms where ultimately, financial institutions still have a responsibility to monitor their customers’ activity, identify and investigate unusual or suspicious behavior and report this to the relevant authorities in a reasonable time.
- The high percentage of false positives with current software solutions challenges the market to grow. Today most of the financial institutions use rules-based transaction monitoring and KYC systems to fight money laundering. With this solution, detection scenarios currently only produce alerts following on known and existing scenarios. There is no ability to detect new scenarios similar to the zero-day attacks in cybersecurity, which adheres to the result of false-positive output.
Key Market Trends
Recent Fines Faced By Banks and other Organizations By Regulators
- The Financial and Capital Market Commission (FCMC) is a public body that oversees financial institutions in Lithuania. FCMC fined Signet Bank of Latvia EUR 906,610 for violating anti-money laundering (AML) and anti-terrorism financing regulatory requirements. The reasons for the fines include the Bank's inadequate internal control system, customer-based risks and violations, and deficiencies regarding risk management. (July 2020).
- The New York State Department of Financial Services imposed penalties on Deutsche Bank AG, the New York branch, and Deutsche Bank Trust Company America for AML compliance failures as well as correspondent banking relationships with Danske Bank Estonia and FBME Bank. Deutsche Bank faced a penalty of USD 216.1 million as a result of this decision. (July 2020).
- The United Kingdom’s financial regulator, the Financial Conduct Authority (FCA), fined the Commerzbank London branch EUR 37.8 million for violations of AML controls. The FCA stated that the violations stemming from Commerzbank pose great financial crime risks and damage the stability and integrity of the financial system in the United Kingdom. As a result of FCA's audits, Commerzbank London detected three major failures, including the failure of periodic due diligence on its customers. The bank was also found to be insufficient in the control procedures of money laundering risks in customer transactions. (June 2020).
- Hong Kong's Securities and Futures Commission (SFC) imposed a USD 25.2 million fine on Guotai Junan Securities (Hong Kong) Limited for violations of AML processes. The reasons for the AML penalty included the failure to regularly monitor customer transactions and delays in reporting processes. (June 2020).
- Hence rise in such fines and need for monitoring customers transactions indicates the need for robust transaction monitoring solutions.
Europe Accounts to Hold Significant Market Share
- In October 2019, a Joint Opinion published by EIOPA, EBA, and ESMA, the three main European Supervisory Authorities (ESAs), stated that they found weaknesses in the control frameworks of financial institutions regarding transaction monitoring and suspicious transactions reporting, especially in segments having high transaction volumes. The ESAs acknowledged in their opinion that the use of new technologies provides ample opportunities to better fight financial crime.
- According to the European Banking Authority(EBA), AML is the top priority for the European Union in 2020 as terrorist financing, and money laundering are the main threatening risks. To address such an issue, EBA would form a new committee to ensure a collaborative approach towards the problem by working on the superimposable implementation of different policies. The focus is to investigate the breaches of AML regulations and take necessary actions.
- Europe witnessed many money laundering scandals in 2019. For instance, the Danske Bank (Denmark) scandal which exposed the threatening level of suspects that flowed unchecked through European banks in past years.
- This scandal has witnessed Denmark’s largest lender facing a plethora of investigations, probes, recriminations, and accusations in various countries for its monitoring, reporting, and handling of some EUR 200 billion, or more than USD 224 billion, in potentially suspicious transactions tied to Russia.
- Hence, European authorities would be less lenient and more assertive with enforcement when dealing with such financial crimes. As the United Kingdom is committed to being a leader in fighting financial crimes and providing effective financial regulations, the enactment of the sanction and AML bill would give the UK the power to introduce its own AML legislation bill. According to Fenergo, UK regulators issued five fines worth USD 224.8 million in the full year of 2019.
The transaction monitoring market is fragmented in nature, and the major players have used various strategies such as new product launches, expansions, mergers, and acquisitions, etc. which potentially creates a highly competitive environment. Key players are Fair Isaac Corp., BAE Systems Plc. Recent developments in the market are -
- September 2020 - Exchange group Nasdaq stated that it is introducing AI technology to help retail and commercial banks automate AML investigations as it expands into the financial crime software market. The company hopes that the system can make it quicker and cheaper for banks and other financial organizations to examine through the deluge of alerts flagging possible cases of money laundering generated by bank transaction monitoring systems.
- April 2020 - Huobi Group launched an in-house transaction intelligence tool to dampen out illicit activity across its crypto exchanges. The new program, called Star Atlas, will automatically freeze accounts deemed to be engaging in suspicious transactions until a compliance officer follows up on the case. It will help Huobi’s exchanges target abnormal behaviors and problematic transactions in real-time.
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1.1 Study Deliverables
1.2 Study Assumptions
1.3 Scope of the Study
2 RESEARCH METHODOLOGY
3 EXECUTIVE SUMMARY
4 MARKET DYNAMICS
4.1 Market Overview
4.2 Market Drivers
4.2.1 Adoption of KYT (Know Your Transactions) to Identify Potentially Risky Transactions
4.2.2 Increasing Stringent Regulatory Compliance
4.3 Market Restraints
4.3.1 High Percentage of False Positives with Current Software Solutions
4.4 Overview of Information-Sharing Structures across regions(US - 314(b), UK - Joint Money Laundering Intelligence Taskforce (JMLIT) etc.)
4.5 Industry Attractiveness - Porter's Five Forces Analysis?
4.5.1 Threat of New Entrants
4.5.2 Bargaining Power of Buyers/Consumers
4.5.3 Bargaining Power of Suppliers
4.5.4 Threat of Substitute Products
4.5.5 Intensity of Competitive Rivalry
4.6 Assessment of Impact of Covid-19 on the Industry
5 MARKET SEGMENTATION
5.2.1 North America
5.2.3 Asia Pacific
5.2.4 Latin America
5.2.5 Middle East and Africa
6 COMPETITIVE LANDSCAPE
6.1 Company Profiles
6.1.1 Fair Isaac Corp.
6.1.2 BAE Systems Plc
6.1.3 Oracle Corporation
6.1.4 SAS Institute Inc.
6.1.5 Infrasoft Technologies Limited
6.1.6 Fiserv, Inc.
6.1.7 Experian Plc
6.1.8 Refinitiv Ltd.
6.1.9 ACTICO GmbH
6.1.10 Beam Solutions, Inc.
7 INVESTMENT ANALYSIS
8 MARKET OPPORTUNITIES AND FUTURE TRENDS
Secondary Research Information is collected from a number of publicly available as well as paid databases. Public sources involve publications by different associations and governments, annual reports and statements of companies, white papers and research publications by recognized industry experts and renowned academia etc. Paid data sources include third party authentic industry databases.
Once data collection is done through secondary research, primary interviews are conducted with different stakeholders across the value chain like manufacturers, distributors, ingredient/input suppliers, end customers and other key opinion leaders of the industry. Primary research is used both to validate the data points obtained from secondary research and to fill in the data gaps after secondary research.
The market engineering phase involves analyzing the data collected, market breakdown and forecasting. Macroeconomic indicators and bottom-up and top-down approaches are used to arrive at a complete set of data points that give way to valuable qualitative and quantitative insights. Each data point is verified by the process of data triangulation to validate the numbers and arrive at close estimates.
The market engineered data is verified and validated by a number of experts, both in-house and external.
REPORT WRITING/ PRESENTATION
After the data is curated by the mentioned highly sophisticated process, the analysts begin to write the report. Garnering insights from data and forecasts, insights are drawn to visualize the entire ecosystem in a single report.