How to Do Transaction Monitoring at Your FX Trading Platform

by Bence Jendruszak

Forex trading platforms are under increasing scrutiny from regulators. KYC and AML regulations must be met, not to mention the need for flagging fraudulent behavior in order to protect your business and customers.

Transaction monitoring can help.

Why Is Transaction Monitoring Important for Forex Trading Platforms?

Transaction monitoring helps forex trading companies in a number of ways:

It ensures you meet AML regulations: Anti-money laundering laws require companies to flag transactions, withdrawals, and conversions above a certain threshold. While the threshold varies from one country to the next, the idea is always the same: log the information to report it to authorities.
It covers your compliance requirements: This helps avoid fines, legal issues, and even negative press in the long run.
It helps spot suspicious activity: A surprisingly large volume of new conversions may mean that you’re dealing with fraudulent activity, either from money laundering or some kind of transaction fraud.
It keeps your users safe: Monitoring transactions is a great way to spot suspicious behavior and even receive account takeover alerts whenever a fraudster takes hold of one of your customers’ accounts. The sooner you can respond to account takeovers, the better.

Note that the last point is also valid when it comes to social engineering. If your customer has found themselves involved in some kind of scam, their behavior might suddenly change. You can also nip this in the bud with proper monitoring.

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How Do You Perform Transaction Monitoring in Forex Trading?

Like in every other industry, transaction monitoring starts with risk rules. You tell your fraud prevention or AML software what should be flagged. The data flows in via APIs (or internally if you have a built-in solution), and certain combinations of data points trigger a rule.

Note that transaction monitoring can be set up proactively or reactively. The data may be gathered in real-time or parsed from logs. As for the kind of risk rules you can deploy, they tend to fall into two key categories:

Static rules: A transaction over a certain threshold, for instance, is always flagged as risky. Unfortunately, this creates a high rate of false positives.
Velocity checks: More complex rules that take into account how often an action happens during a certain set period. This helps us understand behavior rather than single actions.

Top 3 Custom Rules for Transaction Monitoring in Forex Trading

Let’s dive straight into some concrete examples of transaction monitoring rules to help your forex trading platform, as deployed within the SEON platform.

#1: One-Day-Old Account Receives More Than 10 Deposits

While you should be able to catch most KYC and AML risks at onboarding, another crucial part of the journey to monitor is the first deposit. Below is a perfect example of a velocity rule, where we monitor a number of time-based actions:

The account is less than 24 hours old.
There are 10 deposits or more.
The deposits took place within the last hour.

How you would handle this scenario is up to you. We’ve decided to add +1 to our risk score with every new deposit. While this isn’t strictly an AML red flag, it indicates that you should closely monitor this user’s activity (and maybe run their name through an AML checker, if possible).

#2: Transactions Increased by 200% Over a 24-Hour Period

Another velocity check, which once again attempts to catch suspicious activity in the act. Here, we’re looking at a sudden increase in transactions.

How you define transactions is up to you. It will most commonly be a withdrawal but it can also refer to a deposit or even a conversion.

200% increase in transaction value rule screenshot

Above, you will see that the timeframe is set to one day, and the percentage increase is set at 200% – but such preferences are up to you.

In the example, we want this action to increase our risk score by 20 points – which can trigger an automatic decline or review, depending on your risk appetite. And here, on the right hand side, is the rule, triggered:

200% Increase in 24 hours, fraud score 26.60. Review.

#3: Transaction Triggers the AML $3000 Rule

The $3000 rule is currently defined by the Bank Secrecy Act as the threshold where financial institutions (including forex trading platforms) must verify and record the customer’s identity. In the context of AML, this usually involves logging data for a Suspicious Activity Report (SAR).

Luckily, it’s one of the easiest and most straightforward rules to set up with our fraud prevention tool. In the example below, you can see how the transaction amount (sent via API) lets you instantly send the transaction to manual review.

A noteworthy point for people new to AML regulations is how easy it is to edit or duplicate such a rule. This will be particularly handy when AML regulations inevitably change.

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How SEON Helps Forex Trading platforms with Transaction Monitoring

SEON is designed to gather all your business data and turn it into a sophisticated filter that catches bad agents, to prevent fraud and help your compliance.

Transaction monitoring is one aspect of its functionality, but the solution can also help with other AML and KYC concerns and fight fraud at large, with features such as:

Fully customizable risk rules: These let you control risk however you see fit. With blacklists, custom rules, manual adjustments, and risk scoring, you can empower your analysts and deploy compliance checks based on ever-changing laws – and your risk appetite.
Data enrichment suite: Don’t be limited by the data fields your app or website logs. Data enrichment will extract more information from open sources to give you a complete profile of your customers – a digital footprint that will show their intentions more clearly.
Machine learning modules: Need an extra hand to refine your risk strategy? Leverage the power of machine learning to analyze vast numbers of transactions specific to you and reveal unknown patterns that could put your FX trading platform at risk of money laundering. You’ll also get an additional blackbox risk score, ensuring you are even safer.

Whether you need to understand your customers’ behavior to reduce fraud, benefit from better customer intelligence, or meet compliance requirements, SEON is an easy-to-deploy, efficient and customizable solution for your FX trading company.