HKMA Transaction Monitoring & Screening Guidance

Leveraged financial crime compliance technology and model risk management ("MRM") expertise to support the Hong Kong Monetary Authority (HKMA) in reviewing and enhancing its regulatory guidance on transaction monitoring and sanctions screening practices for Authorized Institutions operating under its regulatory authority. Advised the HKMA on international best practices for evaluating and implementing transaction monitoring and sanctions screening solutions, particularly in the context of evolving regulatory expectations, technological innovation, and risk-based compliance frameworks.

The work contributed directly to the revision of the Guidance Paper on Transaction Monitoring, Screening and Suspicious Transaction Reporting. Working closely with the HKMA team, the team helped define principles and actionable measures that institutions should take to meet their Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) obligations. A key focus was ensuring that transaction monitoring systems were not only automated and scalable but also calibrated to each institution’s specific AML/CFT risk profile, with an emphasis on the need for systems to support customizable rules and scenarios, enable customer segmentation, and undergo robust testing—such as above-the-line and below-the-line validation—to minimize false positives while maintaining sensitivity to genuine risks.

There was also deliberation on how AIs could incorporate external data sources and align their systems with data quality standards through regular assurance testing. This ensured the guidance addressed the importance of accurate, complete, and integrated data to support risk detection and compliance.

In the area of sanctions screening, the team advised on the importance of tuning system thresholds, managing false positives, and using phonetic and language-based screening logic, particularly for non-Latin character sets. Guidance was also issued ensuring that AIs retain accountability for system performance—even when outsourcing screening functions or relying on group-level tools—and that effective governance, oversight, and escalation procedures are in place. This work also informed the guidance on suspicious transaction reporting (STR), particularly regarding improving the quality, consistency, and structure of STRs submitted to the Joint Financial Intelligence Unit (JFIU).

A link to the HKMA guidance can be found here.