Webinar 3 - Transaction Monitoring: Manual Strategies Don't Scale

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Digital Currency Webinar SeriesSession 3:“Transaction Monitoring:Manual Strategies Don’t Scale”

Panelists

Angela ChartrandCo-FounderSentinence

David RipleyCo-Founder and CEOGlidera

Paulina IslasIn-House CounselBitso

Jose CalderaVice President of Marketing and Products IdentityMind Global

Angela Chartrand

• Co-Founder of Sentinence

• Angela Chartrand is known for her investigative skills, conducting thorough due diligence and adherence to all jurisdictional regulatory requirements.

• In her 30 years of experience within the financial services industry, Angela has been involved in developing industry standards, been part of Advocacy working groups and has worked towards bridging the understanding and communication gap between the regulator and the financial entity.

• Currently Angela sits on the Canadian MSB Association’s Industry Standards and Advocacy Committees.

David Ripley• Co-founder and CEO of Glidera, Inc., a digital currency venture headquartered in

Chicago

• More than 15 years of business experience, across multiple industries, including tech and financial services

• Was most recently the Principal for The Boston Consulting Group, where he advised C-level executive teams of Fortune 500 companies

• Previously held roles in software engineering and product management with Syclo, a mobile enterprise software company acquired by SAP in 2012

• Earned his MBA from the Kellogg School of Management at Northwestern University, and his BS in Electrical and Computer Engineering from the University of Illinois

• Glidera offers a bridge to the existing financial system for digital currency developers, providing a way for developers to directly integrate Bitcoin buy/sell capabilities into their applications

Paulina Islas

• In-House Legal of Bitso

• Paulina is a former Mexican Ministry of Finance Official with years of experience on

financial regulation and anti-money laundering compliance.

• She wrote a thesis for a model law on how to regulate virtual currencies in Mexico and is

also experienced on Financial Services Free Trade Agreements, as she was part of the

Mexican negotiating team of the recently concluded TPP.

• Founded in 2014, Bitso set out to bring the potential of cryptocurrencies to Mexico and

LATAM. We prioritize security, transparency and best practice operations, while breaking

new ground with innovative product development. We’re the bridge to Mexico’s new

Digital Economy.

Jose Caldera• Developed and marketed products for the last 20 years.

• Focus always been on the Enterprise, developing products and services for Information and Payments Security, Risk Mitigation and Compliance.

• Experience in application and network security, payments, virtual currencies, anti-fraud, and anti-money laundering.

• Developed and marketed products for a number of Silicon Valley companies, including Securify, McAfee, and now IdentityMind Global.

• Earned a Masters of Science in Information Networking from Carnegie Mellon.

• IdentityMind Global is an e-commerce company offering an on-demand platform providing risk management, anti-fraud and anti-money laundering services for online merchants, acquiring banks, payment processors and gateways, payment service providers (PSP/ISO/MSP,IPSP), digital currency exchanges, and financial institutions (banks, money service businesses (MSBs), money transmitters).

TRANSACTION MONITORING

TRANSACTION MONITORING MANUAL VS AUTOMATED PROCESS

Manual Small number of transactions able to be

reviewed Human error, mistakes that can cost you $

$ Slow process – time consuming -

overwhelming Additional manpower may be required Memory recall – establishing criteria very

hard to accomplish

Automated Effective regardless of a few transactions or

hundreds/thousands of transactions Margin of human error less Save on Manpower – automated process cost

efficient and performance success rate is greater

Automated systems allows for the tracking of patterns

Regulators like to see a well known automated process is in place

2023-05-01Angela Chartrand - Owner - Sentinence - May 2016

ALERTS - I HAVE SO MANY - MANUAL REVIEW

If running a manual transactional monitoring process - YOU WILL – YOU ALWAYS WILL!!

Every transaction in the manual monitoring world is a POTENTIAL Alert

Delays action being taken

Have to take action but not finished reviewing all transactions


ALERTS – AUTOMATED PROCESS


Automated transactional monitoring process only brings to sight those transactions that are defined “red flags”

Reportable – for effective management of review process Action can be taken in a timely manner

HOW LONG SHOULD IT TAKE ……..

Clearing an alert can take a few minutes or it can take much more

Define your alerts clearly in the set up process

Initial Red Flag Default Set Up Time is a Time investment


OK SO I HAVE ALERTS – NOW WHAT?


Review Alerts

Look for patterns Look for the “henchmen” Has this has happened before Does it make sense? Document your findingsEscalate if needed – Compliance Officer – Compliance Manager – Risk Manager/Dept.File a Suspicious Transaction Report to the appropriate Regulatory Body

Starting out can be difficult…

Starting out can be difficult

New companies can leverage some advantages

Business model Implementatio

n

Simplicity is your friend

Customers

Products

Transaction thresholds

The implementation processTransactions

Rules

Alerts

Cases

Reports

Technology platform critical to success

Automation Data Integration

Automation ensures coverage and manageability

Aut

omat

ion

Transactions

Rules

Alerts

Cases

Reports

Process and Data integration promotes thorough and efficient operations

Customer identification

Fraud detection

Customer support

Transaction monitoring: What do regulators typically look for

• Financial Institutions in México are required by Law to have automated systems

for transaction monitoring, which must have the following qualities:

• Record Keeping.

• Ensure integrity, availability, auditability and confidentiality of the information.

• Transaction grouping, monitoring and reporting.

• Operations classified by type of service and alerts generated by service-

inherent thresholds.

• Transaction consolidation and services grouping per client.

• Sanction and PEP lists screening.

Transaction monitoring: What are the most important alerts and amounts?•Mexican regulation contemplates several different alerts and amounts.

•The alerts vary depending on the type of institution and the financial medium that is used.

•The most common are the following:

• Relevant Operations Any type of transfer for value above 5,000 USD

• Reports on International Transfers Transfers above 1,000 USD

• Reports on Unusual Operations Suspected illegal activity

• Reports on Internal Operations Suspected officials or employee fraud

• Reports on operations above limits specified in the AML law.

• These reports are exclusive to cash, metals or bitcoin operations and for select

type of operations above certain thresholds

How to AML/KYC with Digital Currencies

•Digital currencies are still a fairly unregulated scene.

•Since their financial “nature” is still being determined, regulation has steered mostly towards

the uses of the currency.

•Lack of regulation or very little regulation lead to uncertainty which can result in:

• Extreme self-regulation, that could prevent business development.

• Too little self-Regulation, which could result in fines or even jail time.

•Given the lack of regulatory clarity every AML/KYC decision is both a business and a legal

one.

•Every AML/KYC setup impacts the customer support area. Support workers must be trained.

Creating a functional alert flow in the Digital Currencies scene•Determine the business model.

•Figure out whether it falls within any regulated financial activity.

•Set up the alerts in line with the regulated activity.

•Now the really important part:

• Adapting the rules to the different Digital Currencies business models.

• Discerning between weird traders and worrisome transactions.

• Determine which alerts require manual work and which don’t

• Work on a joint strategy with customer support.

•Differentiate when to go manual and when to do automated.

•Draw a workflow for every alert.

Alert! Alert! What’s next?

•Identifying the type of alert.

• Subjective: Generate a report specifying the type of activity or conduct that generated the

alert.

• Objective: determine whether is a self-imposed restriction or a legar requirement.

• Self imposed: transfer to customer support and contact client.

• Legal: every legal requirement should be automated up to the point where the STR

is generated.

•Notifying the authorities accordingly with the timeframe given. In Mexico it varies from a 24 hour

period up to quarterly reports.

•Closing the account, if applicable.

Recap: Why manual strategies don’t scale?•Automated systems are required by Law.

•Exposure to human error or collusion.

•They prevent business growth.

•Manual work can create a customer support nightmare.

Q&A

Use the buttons on the top-left corner of your screen to ask questions.

Webinar 3 - Transaction Monitoring: Manual Strategies Don't Scale

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