You’ve got a client whose rental income suddenly doubled. Another whose limited company is moving money in circles. A third depositing £15,000 cash monthly from a “consulting business.”
Something feels off, but what are you actually required to do about it?
Transaction monitoring is where AML compliance gets real. It’s not just onboarding paperwork or annual tick-box exercises. It’s ongoing scrutiny of client financial activity throughout your relationship with them. Most practices know they should monitor. Few know exactly what that means in practice.
This guide explains the legal requirement, shows you practical implementation, and helps you build a system that’s sustainable rather than overwhelming.
Key Points Summarised for Busy Readers
- AML transaction monitoring is ongoing scrutiny of client financial activity required under MLR 2017
- You must apply ongoing monitoring to all clients, with the level and intensity proportionate to risk
- You’re looking for activity inconsistent with what you know about the client’s business
- Red flags include unexplained cash, circular transactions, lifestyle mismatches, and sudden pattern changes
- Documentation is essential: record what you reviewed, what you found, and why you did or didn’t escalate
- Failure to monitor adequately risks regulatory penalties and facilitates money laundering
- Proper systems make monitoring efficient rather than overwhelming
What is AML Transaction Monitoring?
Transaction monitoring is the continuous scrutiny of client financial activity to detect unusual or suspicious patterns that may indicate money laundering or terrorist financing.
The key question is whether a client’s financial behavior aligns with the known profile of their business. When activity deviates from expected patterns, it may trigger further investigation, and if it meets regulatory thresholds, could result in the filing of a Suspicious Activity Report (SAR).
Money Laundering Regulations 2017 requires ongoing monitoring of business relationships. Here’s what you’re required to do:
- Scrutinise transactions to ensure consistency with your knowledge of the client
- Keep customer due diligence documents and information current
- Apply enhanced monitoring for high-risk clients
- Document your monitoring activity with evidence of what you reviewed, when, and what conclusions you reached
HMRC requires documented evidence demonstrating that transaction monitoring is carried out systematically. The approach should be proportionate to the level of risk but must be applied to all clients. HMRC guidance emphasises that informal monitoring is insufficient during an inspection. From a compliance perspective, if it is not recorded in writing, it is considered not to have occurred.
📚 New to AML compliance?
Transaction monitoring is just one part of your AML obligations. For a complete overview of all AML and identity verification requirements, read our 2025 Guide to AML & Identity Verification Rules for Accountants.
When Accountants Must Monitor AML Transactions
Transaction monitoring is a continuous obligation. The frequency and depth depend on risk, but every client requires some level of ongoing monitoring.
- Low Risk Clients – Annual review minimum with monitoring during routine service delivery
- Standard Risk Clients – Annual review minimum with enhanced scrutiny during service work
- High Risk Clients – Quarterly or more frequent reviews with senior oversight and transaction-by-transaction scrutiny
- Special Circumstances Requiring Enhanced Frequency – New clients need intensive monitoring in the first 6-12 months, cash-intensive businesses require more frequent reviews, and Politically Exposed Persons (PEPs) need enhanced ongoing monitoring
- Key Trigger Points Beyond Scheduled Reviews – When circumstances change (new activities, ownership changes, geographical expansion), when red flags appear (inconsistent activity, unexplained transactions), following media reports about the client, or before any significant transaction
- Integration with Normal Work – Monitor during accounts preparation, tax return filing, bookkeeping services, and advisory meetings rather than treating it as separate compliance work
Note: The suggested review frequencies are examples based on risk and should be adapted to each practice’s risk assessment.
📋 Understanding the bigger picture?
AML transaction monitoring is just one of the 8 steps of AML compliance. Learn how accountants must conduct complete AML checks in our guide: Steps of an AML Check (Explained for Accountants).
How To Monitor AML Transactions
Effective transaction monitoring requires a systematic approach. Here’s how to implement it practically.
Step 1: Establish the Baseline
Before unusual activity can be identified, it is essential to understand what constitutes normal behavior for each client. Review customer due diligence information and document:
- Typical transaction types and values
- Expected volumes and frequency of transactions
- Normal sources and destinations of funds
- Transactions or patterns that would be unusual for this specific client
This baseline serves as the reference point for all future monitoring and ensures deviations are identified consistently.
Step 2: Conduct Regular Reviews
Schedule reviews according to the client’s risk profile and integrate them with routine service delivery. For example, when preparing accounts or providing tax services, consider whether the financial activity aligns with the established baseline.
- High-risk clients should undergo more frequent, dedicated reviews beyond routine service work
Regular reviews allow anomalies to be detected early and demonstrate systematic oversight.
Step 3: Know What You're Looking For
Monitoring is effective when you can recognise transactions that deviate from expected patterns. Focus on whether activity aligns with the client’s business, typical transaction amounts, and frequency, as well as the nature of counterparties involved. Behavioral cues from clients can also indicate potential risks.
Key indicators to watch for include:
- Large or structured cash deposits
- Circular money movements
- Transactions with no clear business purpose
- Assets acquired without an apparent source of funds
Being attentive to these signs allows you to identify unusual activity early while keeping the process practical and focused.
Step 4: Document Everything
All reviews, even those showing no unusual activity, must be documented thoroughly. Include:
- Date of review and period covered
- Reviewer’s name
- Scope of the review, including specific accounts, statements, and transactions
- Methodology used, such as full review, risk-based sampling, or automated reports
- Findings, including “nothing unusual noted” where appropriate
- Explanation of any unusual items and conclusion (satisfactory, requires follow-up, suspicious)
- Actions taken and next review date
Create a simple template and use it consistently across all clients. This ensures quality and demonstrates systematic compliance during HMRC inspections.
Step 5: Act on Your Findings
When unusual activity is identified, it is important to act promptly:
- Document specific concerns immediately
- If appropriate and without tipping off the client, request clarification
- Escalate concerns to the Money Laundering Reporting Officer (MLRO) to assess whether a Suspicious Activity Report (SAR) is warranted
- Continue normal service delivery unless advised otherwise
- Record the entire decision-making process
This approach ensures that all actions are traceable and compliant with regulatory expectations.
Step 6: Make It Sustainable
To maintain effective monitoring over time, integrate it into standard workflows:
- For Small Practices – Schedule regular review dates, use client-specific checklists, review bank statements during year-end work, leverage accounting software reports systematically, and document findings in client files.
- For Larger Practices – Use automated reporting from practice management systems, implement risk-based alerts for unusual activity, delegate reviews with partner supervision, perform quality control sampling, and maintain a centralised documentation system.
Integration is key. Monitoring should be part of normal service delivery rather than a separate compliance task. Training client-facing staff on red flags and providing simple, accessible documentation templates ensures consistency and sustainability.
💰 Concerned about compliance costs?
AML transaction monitoring, despite being one of 8 steps in AML checks, requires such scrutiny. You’re not alone worrying about AML compliance costs.
Discover practical, affordable approaches that won’t break your budget: 2025 AML Rules Compliance Too Expensive? We’ve Got You Covered!.
Common Mistakes in AML Transaction Monitoring & How to Avoid Them
Even experienced practices fall into predictable traps with transaction monitoring. Understanding these mistakes helps you avoid them and build a defensible monitoring system.
These mistakes share a common thread: treating transaction monitoring as an administrative burden rather than a meaningful compliance activity. The practices that get monitoring right integrate it naturally into their service delivery and view it as part of understanding their clients properly.
How Tools Like FigsFlow Can Help
FigsFlow addresses transaction monitoring through a systematic, risk-based approach that ensures no client falls through the gaps while keeping the process manageable as your practice grows.
FigsFlow’s approach to transaction monitoring:
- Risk-based client classification using KYC results, AML check outcomes (including PEP and sanctions screening), and expert-drafted risk assessment templates to automatically categorise each client as high, medium, or low risk
- Automated review scheduling with custom intervals based on risk level, ensuring high-risk clients are flagged for frequent review while standard and low-risk clients are monitored proportionately
- Systematic AML checks at scheduled intervals including PEP screening, sanctions list checks, and adverse media searches against extensive databases, with all results documented automatically in the client file
- Complete audit trail showing when monitoring was conducted, what checks were performed, and what results were found, creating defensible evidence of compliance for HMRC inspections
This handles the systematic screening and scheduling elements, freeing you to focus on transaction pattern analysis and applying your professional judgment about client financial activity.
Additional transaction monitoring capabilities for analysing financial patterns and flagging unusual activity are currently in development and will be available on FigsFlow soon, further streamlining your ongoing monitoring obligations.
🚀 Ready to see it in action?
FigsFlow transforms how accountants handle AML obligations, from initial client onboarding to ongoing monitoring.
Discover how FigsFlow simplifies every aspect of AML compliance: How FigsFlow Simplifies AML for Accountants.
Additional Resources
- Money Laundering Regulations 2017 – Money Laundering Regulations 2017: consultation
- HMRC AML Supervision Guidance – ECSH33335 – Enhanced due diligence
- Complete Guide to AML Software for Accountants, Bookkeepers & Tax Advisors – Everything you need to know about AML software
- Best AML Software for Accountants in 2025 – Best AML Software for Accountants in 2025
- What is an AML Check – What is an AML Check | FigsFlow
Conclusion
Transaction monitoring separates compliant practices from those waiting for an HMRC inspection to expose their gaps. Most practices monitor informally during service delivery but fail to record it. That’s the problem.
Start by documenting what you’re already doing. Formalise your approach, set review schedules, and train your team on red flags. Make it systematic rather than ad hoc.
Technology handles scheduling and screening. Your professional judgment handles context. Together, they create defensible, sustainable compliance that protects both your practice and your clients.
📅 See FigsFlow in Action
Discover how automated monitoring scheduling, risk-based client classification, and systematic AML checks make ongoing monitoring manageable rather than overwhelming.
Frequently Asked Questions
A red flag is any unusual or suspicious financial activity that deviates from a client’s normal behavior and may indicate money laundering or terrorist financing.
Transaction monitoring is triggered when client activity falls outside expected patterns, such as unusual transaction amounts, frequency, counterparties, or jurisdictions.
KYC establishes a client’s identity and risk profile at onboarding, while transaction monitoring continuously reviews financial activity to detect suspicious behavior.
AML is the broader framework encompassing all anti-money laundering measures, including KYC. KYC is a key component, not a replacement for AML.
Yes, transaction monitoring is a core component of AML programs, helping detect and prevent money laundering and terrorist financing.
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