Risk-Based Monitoring of Payment Information

Why It Matters

Not all payments pose the same level of financial crime risk. Adopting a risk-based monitoring approach enables PSPs to focus resources where they are most needed - on high-risk transactions - while maintaining operational efficiency. This approach aligns with the expectations of EU Regulation 2015/847, FATF Recommendation 16, and the UK Money Laundering Regulations (MLRs), all of which require proportionate and ongoing controls tailored to the risks associated with the payer, payee, transaction channel, and geographic exposure.

What Is Risk-Based Monitoring?

Risk-based monitoring involves assessing payment flows based on their risk profile to identify missing, incomplete, or non-compliant information. Rather than applying uniform scrutiny to all transactions, this method calibrates the level of review according to risk.

• High-risk transactions may require real-time review and controls.

• Lower-risk transactions can be subject to post-event sampling or periodic audits.

Key Risk Indicators for Payments

Certain traits elevate the risk level of a payment. Common indicators include:

• Transfers involving high-risk or sanctioned jurisdictions

• Large-value payments or those just below mandatory reporting thresholds

• Payments involving VASPs, intermediaries, or opaque correspondent networks

• Transactions involving newly onboarded customers or those with incomplete KYC

• Unstructured or truncated payment data

• Repeat or structured low-value payments from the same payer

Monitoring Tiers

Monitoring tiers are structured layers of control applied to payments based on their assessed risk level. This tiered framework allows PSPs to efficiently allocate resources and ensure proportionate scrutiny, concentrating intensive oversight on high-risk transactions and applying lighter-touch controls to those that present minimal risk.

Tier 1: Real-Time Monitoring

This tier involves immediate, proactive intervention before or as the payment is executed to prevent execution of potentially illicit or non-compliant transactions and mitigate immediate exposure.

Applies to high-risk transactions such as:

• Payments to or from sanctioned countries

• Transfers involving PEPs

• Transactions using cryptocurrencies or VASPs

• Payments flagged by sanction, PEP, or adverse media screening tools

Controls Include:

• Automated transaction blocking or flagging

• Real-time rules-based alerts

• Integration with watchlist screening systems

• Immediate escalation protocols

Tier 2: Near-Time or Post-Event Review

This tier uses delayed review mechanisms shortly after execution, typically through exception reporting to catch and investigate anomalies, reducing risk without delaying routine payments.

Applies to medium-risk transactions, such as:

• Transfers through correspondent banking with incomplete or delayed payment data

• Transactions from new customers without a behavioral transaction history

• Payments involving emerging markets or flagged industry sectors

Controls Include:

• Daily or weekly exception reports

• Sampling of transactions for manual review

• Pattern recognition tools for unusual behavior detection

• Alerts for threshold breaches (e.g. amounts just under reporting thresholds)

Tier 3: Periodic Sampling or Audit-Based Monitoring

The lightest oversight tier, involving scheduled reviews of low-risk payment flows to maintain ongoing compliance and detect dormant or emerging risks without burdening day-to-day operations.

Appropriate for low-risk payments, such as:

• Domestic payments between long-established customers

• Low-value, recurring transfers that match established behavior patterns

• Transfers between fully verified, low-risk entities

Controls Include:

• Batch analytics or rule-based retrospective checks

• Scheduled internal audits of payment data completeness and integrity

• Random sampling for data quality assurance

A tiered monitoring approach helps PSPs focus on the highest-risk payments, reducing the chance of regulatory breaches. It improves efficiency by avoiding unnecessary checks on low-risk payments. The structure also allows firms to adapt quickly to changing threats and ensures clear documentation for audits and reviews.

Monitoring Controls & Tools

To effectively implement a risk-based approach to monitoring payment information, PSPs should deploy a layered toolset that addresses both data quality and transaction behaviour. These tools help automate detection, reduce manual errors, and ensure consistent compliance with regulatory expectations.

• Data Validation Engines

  These systems are used to verify the completeness and accuracy of payment data, especially the payer and payee details, before the transaction is processed. Validation engines can check for missing fields, unstructured input, or formatting errors, ensuring compliance with standards like EU Regulation 2015/847 or SWIFT message rules. Early validation reduces false positives and prevents incomplete or non-compliant transactions from entering the payment stream.

• Screening & Analytics Platforms

  These platforms conduct real-time or batch-based screening against sanctions lists, PEPs, and adverse media sources. In addition to static list screening, advanced analytics tools can detect unusual patterns, behavioural anomalies, or geographic clustering that may indicate emerging threats. This layer is key to identifying transactions that warrant escalation despite appearing routine on the surface.

• Wire Transfer Assurance Tools

  Wire transfer assurance tools such as WireCheck are typically RegTech platforms that ensure field-level consistency across payment records, especially in systems like SWIFT MT or ISO 20022. These tools validate that payer and payee information remains intact and unaltered across the transaction chain from payer through intermediaries to the payee. They also help identify truncated or overwritten data, a common issue in cross-border payments involving multiple banks or message formats.

• Threshold Alert Systems

  Threshold alerting involves automated detection of payments that hover near regulatory reporting limits or exhibit structuring patterns, such as multiple low-value transfers below a known threshold (also known as smurfing). These tools are critical for identifying deliberate evasion tactics, triggering alerts when cumulative activity exceeds acceptable risk levels, or when transaction velocity suggests illicit layering or concealment attempts.

  
  

Roles & Responsibilities

The following table outlines the key roles and responsibilities across the three lines of defence, ensuring effective governance and accountability in the monitoring process.

Best Practices

To ensure the effectiveness and sustainability of a risk-based monitoring framework, PSPs should adopt the following operational and strategic practices:

• Define & Regularly Update Transaction Risk Scoring Models

  Establish a clear methodology for scoring the risk of each payment based on factors such as payer and payee profiles, transaction value, origin and destination jurisdictions, and the involvement of intermediaries or VASPs. These models should be dynamic, reflecting changes in typologies, regulatory expectations, and emerging threats. Regular reviews (at least annually, or more frequently in high-risk environments) ensure that the risk model remains relevant and responsive.

• Tailor Monitoring Frequency to the Assessed Risk Tier & Payment Channel

  Apply differentiated monitoring schedules based on the risk level of the transaction and the delivery channel (e.g. online, in-branch, correspondent banking). High-risk transactions should be subject to real-time or near-real-time scrutiny, while lower-risk ones may be reviewed in batches or through periodic sampling. This approach prevents resource strain, improves investigative efficiency, and ensures proportionate coverage across transaction types.

• Maintain Clear Documentation of Review Decisions & Rationales

  For each escalated payment or alert, maintain a transparent audit trail of review outcomes, investigator notes, and decision-making rationales. This documentation is essential not only for internal governance and learning but also for demonstrating compliance during regulatory inspections or audits. Firms should adopt a standardised format for documenting these decisions and store records in a way that enables easy retrieval and reporting.

• Track & Improve Performance Metrics

  Establish and monitor key performance indicators (KPIs) to assess the health and efficiency of the monitoring programme. Important metrics include:

  • False positive rate: the proportion of alerts that turn out to be non-issues

  • Escalation accuracy: how often escalated alerts result in a meaningful outcome (e.g. SAR, blocking)

  • Turnaround time: the speed at which alerts are reviewed and resolved

  • Alert volume trends: indicating system tuning needs or emerging risks

Regular analysis of these metrics supports continuous improvement, helping to fine-tune thresholds, reduce unnecessary workload, and improve overall system effectiveness.

Summary

Risk-based monitoring is not optional; it is an embedded requirement in global regulatory frameworks governing wire transfers. By aligning oversight intensity with transaction risk, firms can effectively detect anomalies, satisfy supervisory expectations, and reduce compliance burden on operations.