Article

Updated: 25/09/25

9 Mins Read

What Is Transaction Monitoring in AML & How It Works

Jeremy Doyle Director Growth, AML Solutions

Transaction monitoring is a key part of any anti-money laundering (AML) program. It helps financial institutions review transactions in real time and after the fact to spot suspicious activity such as money laundering, terrorist financing, or other crimes.

In this guide, we explain what transaction monitoring is, how it works, and why it’s essential for compliance and risk management.

5 key takeaways of AML transaction monitoring

What Is Transaction Monitoring in AML?

AML transaction monitoring involves reviewing financial transactions both in real time and after they occur. Its main objective is to identify early signs of money laundering, terrorist financing, or other financial crimes. In practice, this helps institutions remain compliant with global AML regulations and detect suspicious activity such as:

Unusual transaction volumes or rapid fund movements
Transfers in or out of high-risk regions
Patterns that don’t match a customer’s normal behavior

Modern systems use a mix of rule-based logic and machine learning. This helps reduce false positives, uncover new risks, and speed up investigations. By combining fraud signals, behavioral data, and case management tools, compliance teams can act faster and more accurately.

Why Is AML Transaction Monitoring Important?

AML transaction monitoring is critical for three main reasons: regulatory compliance, proactive risk detection, and effective customer due diligence.

From a regulatory standpoint, it’s a global mandate. Institutions must follow standards like the Financial Action Task Force (FATF), the EU’s 6th Anti-Money Laundering Directive (6AMLD), and U.S. FinCEN guidelines, all of which require firms to detect and report suspicious activity tied to financial crimes. Failure to comply can lead to severe fines, loss of licenses, and reputational harm — for example, Westpac was fined AUD 1.3 billion in 2020 for inadequate monitoring of suspicious international transfers.

Beyond compliance, robust monitoring strengthens risk management by detecting financial crime red flags early and giving teams time to intervene. It also supports customer due diligence by continuously assessing behavior and updating risk profiles in real time. In short, strong AML monitoring protects institutions, customers, and brand trust while reducing exposure to financial crimes.

Batch vs Real-Time Transaction Monitoring

Batch monitoring and real-time monitoring represent two different approaches to reviewing transactions for suspicious activity.

Batch monitoring reviews transactions after processing, typically at the end of the day or during scheduled intervals. Although this method meets basic compliance requirements, it delays the identification of potentially illicit behavior. By contrast, real-time transaction monitoring screens transactions as they happen, enabling institutions to respond instantly before further damage occurs.

Although real-time AML monitoring isn’t mandated by regulators, it is widely regarded as best practice, helping reduce risk, accelerate investigations, and ensure timely Suspicious Activity Report (SAR) filings. Modern AML tools achieve this by combining behavioral data, transaction velocity, and custom rules to detect threats faster and minimize false positives compared to batch screening.

To explore more about how this approach compares with batch screening, see our deep dive on real-time vs batch monitoring.

comparison table: batch processing vs real time transaction monitoring

How Does the AML Transaction Monitoring Process Work?

AML transaction monitoring continuously reviews customer transactions to detect suspicious behavior. Instead of a one-time check, it’s applied on an ongoing basis to support compliance, improve risk visibility, and protect institutions from criminal exploitation.

At a high level, the process involves several steps. First, collecting transaction data; then assessing it against customer risk profiles; and finally identifying patterns or anomalies that warrant further investigation.

Key steps in an AML transaction monitoring program include:

1. Data collection

The process starts with gathering detailed information about each transaction — including amounts, timestamps, locations, IP addresses, and device types. This comprehensive data forms the foundation for spotting unusual patterns and training monitoring systems to detect suspicious activity more effectively.

2. Customer risk profiling

Next, institutions build risk profiles for each customer by looking at multiple factors, such as:

Geography: where the customer lives or transacts from
Transaction history: typical amounts, frequency, and patterns
Type of activity: the nature of payments, transfers, or services used

Establishing this behavioral baseline makes it easier to spot unusual activity later — for example, a sudden spike in transfers abroad or a shift to high-risk payment methods.

3. Detecting unusual activity

Transactions are then analyzed in real time and compared against both the customer’s past behavior and peer group norms. Monitoring systems flag red flags like sudden spikes in volume, frequent transfers to high-risk jurisdictions, or attempts to stay just below reporting thresholds.

Want to learn more? Check out our guide on 11 Red Flags in Suspicious Financial Transactions to help your team stay one step ahead.

4. Alert generation

The system automatically generates alerts whenever it detects unusual activity. In addition, it prioritizes them by severity, enabling compliance teams to focus on high-risk cases without being overwhelmed by low-priority reviews.

5. Review and investigation

Analysts review flagged transactions by checking customer KYC details and broader activity patterns. If the behavior looks suspicious, the case is escalated — often resulting in a Suspicious Activity Report (SAR) being filed with regulators.

6. Ongoing optimization

Finally, effective AML transaction monitoring evolves alongside new risks. Institutions regularly refine detection rules, update strategies, and reduce false positives to keep systems accurate and efficient over time.

Modern AML Transaction Monitoring Systems

To address these challenges, modern AML transaction monitoring systems prioritize real-time detection, helping teams spot suspicious activity as it occurs. By combining behavioral and fraud signals, like IP, device, and velocity data, with AML alerts, institutions gain a clearer view of risk and can better distinguish between money laundering and other threats.

Modern systems combine customizable, no-code rules with automation to cut false positives and surface only the alerts that matter. Cases are automatically routed based on risk level, SLAs, or team workload, helping analysts focus on the highest priorities. With direct access to updated sanctions lists, crime databases, and PEP registries, teams can make faster, more accurate decisions without switching tools.

Investigations are streamlined through built-in case management tools that centralize evidence, notes, and audit trails. AI-powered regulatory reporting simplifies SAR filing, and a single API integrates AML screening, monitoring, fraud detection, and reporting, ensuring consistency and easier implementation.

SEON’s AML Transaction Monitoring Solution

Learn how SEON helps compliance teams detect suspicious activity, customize rules, and streamline reporting in real time.

AML Transaction Monitoring Solution

Building an Effective AML Transaction Monitoring System

As financial crime evolves, organizations need more than static rulebooks to stay compliant. Effective AML transaction monitoring requires speed, flexibility, and data intelligence to adapt to risks in real time.

Below are six key capabilities that define a modern, scalable approach.

Fraud and money laundering don’t wait. That’s why real-time transaction screening helps surface suspicious behavior as it happens — from unusual transfer patterns to rapid-fire payments. The faster the alert, the faster the response, reducing exposure and downstream compliance risks.

Effective monitoring goes beyond transaction amounts by including context: device types, geolocation, login habits, and more. By layering fraud signals with AML data, teams can catch hidden patterns and better separate true threats from false positives.

Compliance strategies shift constantly. No-code rule builders allow teams to tweak thresholds, logic, and trigger conditions based on new regulations or business needs — without relying on developer time. This means faster iterations and more relevant alerts.

As transaction volumes rise, so do alerts. Modern systems help teams triage automatically, routing cases by severity, customer profile, or SLA. This allows investigators to focus on the most meaningful activity — not waste hours on low-risk alerts.

Staying compliant means screening every transaction and customer against up-to-date sanctions lists, PEP databases, and adverse media. Systems that embed these checks natively strengthen both defensibility and efficiency.

Detection is only step one. Built-in case management tools make it easier to annotate, collaborate, and file reports like SARs and CTRs — all with the audit trails regulators expect. Everything happens in one place, from first alert to final decision.

Why Smarter Transaction Monitoring Matters

In AML, transaction monitoring safeguards financial institutions from exploitation, ensures compliance with regulations, and maintains overall integrity. As a result, proactive oversight has become essential, especially as fraudsters leverage advanced technologies and real-time digital payments.

SEON’s AML transaction monitoring solution empower your anti-fraud and money laundering prevention strategy by providing access to hundreds of user identity and transaction data points. These insights enable the creation of customized, flexible, and powerful rules to mitigate AML risks while also protecting against other types of fraud.

Fight Fraud & Money Laundering in One Place

Automate AML: pre-KYC screening, checks, monitoring, alerts, and reporting — all in one real-time solution aligned with your SLAs.

Speak with an Expert

Frequently Asked Questions

What are transaction monitoring rules?

Transaction monitoring rules are conditions used in AML systems to flag suspicious financial activity, such as unusual transaction size, frequency, or patterns. They help compliance teams detect money laundering, fraud, or terrorist financing risks by setting thresholds and triggers that prompt further review.

What global regulations govern AML transaction monitoring, and what are the penalties for non-compliance?

Global AML regulations, such as the FATF Recommendations, the EU AML Directives, and the U.S. Bank Secrecy Act, require financial institutions to monitor transactions for suspicious activity. Failure to implement effective monitoring can result in significant penalties, including multimillion-dollar fines, regulatory sanctions and even criminal liability for compliance failures. Regulators like FinCEN, the European Banking Authority and the UK’s FCA actively enforce these obligations worldwide.

What are examples of suspicious activity detected by AML transaction monitoring?

AML transaction monitoring detects financial behaviors that may indicate money laundering, fraud, or terrorist financing. Examples include large or frequent cash deposits inconsistent with a customer’s profile, multiple transfers just below reporting thresholds (structuring), rapid fund movements across accounts or countries, and transactions involving high-risk jurisdictions or sanctioned entities.