At Abacus, we see transaction monitoring as more than a regulatory requirement. It is an important part of how we protect our clients, investors, the structures we administer and the wider financial system. In today’s financial services environment, it is no longer enough to identify a client at the onboarding stage. Regulated service providers must also understand how funds are generated, where they are held, how they move, and whether that activity is consistent with the client’s profile and intended investment activity.
Clients may sometimes feel that requests for bank statements, wallet records, exchange histories or explanations of transfers are detailed or excessive. In practice, these requests are not about questioning a client’s integrity. They are about ensuring that funds are genuine, traceable and consistent with what we know about the client, while helping identify anything unusual before it becomes a larger issue. They also provide an important layer of protection against exposure to illicit funds, fraudulent payment instructions, sanctioned counterparties or transactions that do not make sense in the context of the client.
Why supporting evidence matters
From the client’s perspective, the legitimacy of funds may seem obvious. From a regulatory perspective, however, legitimacy must be evidenced. A clear documentary trail helps demonstrate that funds are traceable, consistent with a client’s known circumstances and free from indicators of financial crime, sanctions exposure or other elevated risks.
A practical lesson from property transactions
A practical example from my earlier experience in the property sector illustrates this point. A potential buyer stated that funds were available for a transaction but could not provide evidence showing where the money was held or how it could be verified through a regulated banking channel. As a result, the transaction could not proceed because the source and availability of the funds could not be evidenced.
The same principle applies in fund administration. Statements alone are not sufficient. Funds should be traceable, explainable and aligned with the client’s stated source of wealth and source of funds.
Following the journey of funds
Whether funds are held in traditional bank accounts or digital assets, the objective is the same: to understand the path of funds. For bank transfers, this may involve confirming the originating account, identifying intermediate transfers, verifying account ownership and understanding why a particular payment route has been used.
For digital assets, the review will include wallet ownership, wallet balances, exchange records and the path taken by assets across wallets, exchanges and other counterparties. These reviews help determine whether assets have been exposed to sanctioned addresses, scams, stolen funds, ransomware wallets or other higher-risk activity.
How administrators apply transaction monitoring
In practice, administrators apply a risk-based and evidence-led approach. This includes reviewing sources of funds and sources of wealth information, confirming account or wallet ownership, screening counterparties, reviewing transaction histories and escalating unusual or unexplained activity where necessary. Payment instructions and transactions are also subject to internal controls, including four-eyes review processes, helping ensure that decisions are appropriately challenged and verified before funds move.
The objective is not to create unnecessary friction. It is to ensure that subscriptions, redemptions and payment instructions are supported by a complete and defensible audit trail that reflects the client’s profile and the risk presented by the transaction.
Technology supporting crypto reviews
Technology can play an important role where digital assets are involved. Blockchain analytics tools can assist with wallet screening, transaction tracing, sanctions exposure reviews and the identification of potential risk indicators. However, technology is only one part of the process. It does not replace professional judgement, nor does it remove the need to understand the client and the transaction in context.
Conclusion
At Abacus, we understand that transaction monitoring can sometimes feel like an extra layer of questions and documentation. However, it plays an important role in helping us understand the movement of funds, identify potential risks and ensure transactions are supported by appropriate evidence. By taking a practical and proportionate approach, we help protect our clients, investors and the structures we administer, while maintaining confidence in the financial system.
Smita Karnani, Funds Administration team