Which recommendation should the audit team provide to address transaction monitoring (TM) issues?

An audit's primary role is to assess the effectiveness and adequacy of the AML/CFT control framework against the institution's specific risks. A coverage assessment directly addresses this by comparing the transaction monitoring (TM) rules with the institution's enterprise-wide money laundering and terrorist financing risk assessment. This fundamental step ensures the TM system is properly designed to detect suspicious activity relevant to the bank's products, services, clients, and geographies. It is a strategic recommendation that addresses the root cause of potential TM failures, rather than just symptoms like high false positives.

A. Switching off scenarios reduces risk coverage and may lead to missing actual suspicious activity, which is a significant compliance failure.
B. A risk-based approach requires different thresholds for different client risk levels; uniform thresholds are contrary to this core AML principle.
D. Training is important for alert disposition but does not fix underlying issues with the TM system's design, tuning, or risk coverage.

1. ACAMS. (2021). Advanced CAMS-Audit Certification Examination Study Guide, Chapter 3: AML Models and Systems, Section: "Auditing the Transaction Monitoring System," pp. 68-70. (Discusses the importance of assessing scenario coverage against the institution's risk profile).

2. The Wolfsberg Group. (2009). Wolfsberg Guidance on a Risk Based Approach for Managing Money Laundering Risks, Section 3.2: "Monitoring," p. 8. (Emphasizes that monitoring should be risk-based and tailored to the institution's specific risk factors).

3. Financial Action Task Force (FATF). (2012-2023). International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, Recommendation 10: Customer Due Diligence, Interpretive Note, para. 27. (Requires ongoing monitoring of the business relationship, which must be based on risk).