Identification at onboarding answers who the client is. Transaction monitoring answers whether what happens afterwards fits that client. It is the ongoing part of AML compliance and regularly the area with the most audit findings.
Legal basis
The Anti-Money Laundering Act requires special clarifications when transactions appear unusual or there are indications of higher risk. FINMA’s Anti-Money Laundering Ordinance requires supervised institutions to monitor business relationships and transactions effectively; banks and securities firms must use an IT-based system. For financial intermediaries affiliated with an SRO, the SRO’s regulations specify the requirements, often allowing manual monitoring at low volumes.
How monitoring works
The basis is the relationship profile: expected source and size of funds, usual counterparties, countries and payment patterns. Rules and scenarios test deviations, such as payments to or from higher-risk countries, cash movements, unusual structuring, rapid pass-through or amounts that do not fit the known source of funds. Hits are assigned as alerts to a responsible person.
The real bottleneck: alerts
Most alerts are false positives. What matters is how they are handled: every closure needs a traceable reason, recurring false positives call for rule calibration, and genuine anomalies must lead promptly to a special clarification. A system producing many alerts closed without reasons fares worse in an audit than a simpler system with clean documentation.
Family offices and small institutions
Few but large transactions change the logic. Instead of statistical patterns, each larger movement is checked for plausibility against the mandate profile and the documented source of wealth. That needs no expensive monitoring system, but a fixed process: who checks, against what, and where the result is recorded. The audit trail matters more than the technology.