The Nasdaq Verafin 2024 Global Financial Crime Report reveals that in 2023, approximately $3.1 trillion in illicit funds passed through the global financial system. Money laundering contributed to the funding of various harmful activities, including an estimated $346.7 billion tied to human trafficking, $782.9 billion to drug trafficking, and $11.5 billion for terrorist financing.
The advances in digital systems have marked an apparent increase in sophisticated forms of fraud, harming businesses, customers, and financial systems worldwide.
This is where unusual activity alerts (UAA) step in. They detect suspicious activity at its source in real time, allowing financial institutions to take prompt action before suspicious activities cause any financial or reputational harm.
We will cover all the details related to UAA in this blog post, but before that, here’s a quick glossary of terms you will be reading in this blog post.
An unusual activity alert (UAA) is a notification automatically generated by monitoring systems to identify potentially suspicious or irregular activity within an account. These alerts detect behavior that deviates from established patterns or triggers risk thresholds, which could indicate fraudulent or malicious activity.
Typically, UAAs are triggered when an account shows signs of behavior that don’t align with the usual user activity or comply with regulatory AML guidelines, such as suspicious transaction volumes, geographic location anomalies, or account access from unfamiliar devices.
These alerts help organizations identify potential threats before they can escalate into more significant security or financial issues.
To better understand how UAAs function, it’s important to examine the core characteristics that make them effective at detecting and addressing irregular activities.
UAAs are typically generated through automated monitoring systems that continuously analyze account activity for unusual behavior. These systems use advanced algorithms and data analytics to identify patterns and flag activities outside normal operating conditions, such as large transactions, changes in login patterns, or account access from new locations.
UAAs act as an early warning mechanism. They catch the first signs of suspicious behaviors and threats before becoming major problems. UAAs serve as a pre-SAR (suspicious activity report), giving you time to assess and address issues before they require formal reporting.
UAAs are not conclusions in themselves but rather serve as an investigative tool. Once triggered, these alerts prompt further investigation by security teams or fraud prevention units.
They provide a starting point for reviewing account history, analyzing activity in detail, and determining whether the alert is due to a legitimate cause (such as a customer changing behavior) or a fraudulent attempt to exploit the system.
Let’s now understand the triggers that generate UAAs.
Unusual activity alerts (UAAs) are triggered by various factors that may indicate potential fraud, account compromise, or other suspicious behavior. These triggers are grouped into key categories that reflect irregular transaction patterns, account access, and customer behavior.
Transaction patterns are one of the most common triggers for UAAs. Unusual or out-of-place financial activities can often signal potential fraudulent behavior. This is particularly relevant in the context of cryptocurrency money-laundering risk prevention, where cross-border transactions often evade traditional oversight
Some of the primary transaction-related triggers include:
Another important trigger for UAAs is the access patterns associated with an account. Changes in how and where an account is accessed can indicate potential security breaches or unauthorized attempts to access the system. These triggers often include:
Behavioral anomalies involve deviations from a user’s typical behavior. These irregularities are often subtle but can indicate fraud or other suspicious activity.
An anti-money laundering (AML) system studies customers’ accounts to define their behavioral patterns. This includes studying their behavior.
Are all the generated triggers risky? Not exactly.
Triggers are categorized based on their risk. Depending on the nature of the suspicious activity, they can be high-risk or low-risk.
A system identifies the not-so-apparent transaction patterns in a customer account. If they pose significant risks related to money laundering and financial crimes, they generate a high-risk UAA. Such UAA demands prompt investigation and filing of SARs if needed.
For example, a customer makes small, frequent transactions to an offshore company. If there isn’t a reasonable explanation for these transactions, it might be a case of money laundering.
Other high-risk UAAs include alerts for tax evasion, smurfing, and unusually large deposits.
If the unusual event isn’t directly linked to financial crimes or fraud, the UAA is flagged as low-risk. Such UAA also requires investigation. However, they aren’t prioritized like high-risk UAA.
For example, a system generates an alert when a customer makes a down payment on a house. This is because the amount for the down payment is quite large compared to their usual transactions. In such cases, law enforcement agencies won’t require you to dive deep into the investigation.
Now, those are two categories of UAA that a financial institution would generate. The question is, how exactly should they respond to the UAAs?
Anti money-laundering law enforcement agencies in every country have fixed guidelines for dealing with potential fraudulent activities. While the process may vary, here’s a standard way to act on UAAs.
As soon as the UAA is generated, an investigation begins. This includes a quick verification of the customer’s identity documents and biometrics. Further, the customer’s transaction history is analyzed to map any apparent patterns. This helps to understand whether the unusual event has occurred in the past and has any justifiable reason.
Now, inform the customer about the detected unusual activity and explain the steps you’re taking to address these alerts. For instance, let them know if you’re temporarily restricting their account.
Also, give them a chance to explain the transactions. This will help differentiate a legitimate action from suspicious activity. However, as you communicate with the customers, make sure you don’t reveal any unauthorized information that may compromise the investigation.
When the UAA investigation reveals direct involvement in financial crimes and money laundering activities, it must be reported to the regulatory authorities.
According to FinCEF guidelines, businesses must file and submit SARs within 30 calendar days. The SAR should include a detailed activity description, including dates, transaction amounts, and any customer interactions during the investigation. Also, make sure that you maintain confidentiality and don’t inform clients about the SAR being filed.
Technology plays a crucial role in the detection of UAAs, enabling systems to efficiently identify potential fraud, account compromise, or other suspicious activity. Here’s a look at how different technological innovations are transforming the detection process.
Machine learning and artificial intelligence are used to analyze vast transaction data and identify unusual patterns.
Key features include:
Behavioral biometrics uses unique patterns in user interactions (e.g., typing speed, mouse movements) to detect money laundering.
Features include:
Real-time monitoring systems are crucial for quickly detecting and responding to UAAs.
They provide:
An effective UAA program helps with the timely detection, investigation, and resolution of potential threats. We have some tips to help ensure the best UAA practices in your business.
Establish clear policies and guidelines for customer behavior reporting SARs. Clearly outline what constitutes unusual or criminal activity and set threshold limits to detect potential risks. You can create an anti-money laundering compliance checklist to help you improve your AML program.
Conduct detailed training sessions for your entire staff. Explain the signs of unusual activity and how they should respond to different UAAs. Train them on procedures and processes for investigating and escalating high-risk UAAs.
Also, regular training sessions should be conducted to keep them abreast of the latest technologies and happenings in the AML field.
UAA is just a small part of the wide AML framework. It’s important to review the processes repeatedly to remain proactive with your risk management strategies.
Regular updates ensure that the technology and processes align with the regulatory requirements. This helps avoid civil and criminal penalties arising from noncompliance.
UAAs are at the core of your fraud detection strategies. They safeguards your financial institution from potential threats and risks by detecting suspicious behaviors early on.
As financial crime methods become increasingly sophisticated, it becomes necessary to evolve your fraud detection and prevention strategies.
HyperVerge offers cutting-edge solutions designed to enhance your fraud detection capabilities. With state-of-the-art AI technology and seamless integration, HyperVerge empowers financial institutions to identify and respond to suspicious activity more effectively than ever.
An unusual activity alert (UAA) is a notification generated by monitoring systems to flag potentially suspicious or irregular activity within an account. This includes sudden large withdrawals, unexpected international transactions, or unauthorized account access.
An unusual activity simply means that the customer has performed an activity or a transaction that doesn’t align with their normal behavior. While UAA can signify fraud or financial crime, it isn’t always the case.
SAR stands for suspicious activity report. Financial institutions must submit suspicious activity reports when they detect an account’s involvement in illegal activities. UAR, on the other hand, is an unusual activity report. It details every piece of information about the unusual event. It’s an internal document used to monitor and analyze customer accounts closely.
Unusual activity in a bank account refers to transactions that differ significantly from a customer’s typical banking behavior. Some of these unusual activities include:
