Looking to learn frequently used lingo associated to financial crime risk management and compliance? Whether you’re a crime fighter working in a financial institution, managing regulatory compliance, or simply want to understand common fraud and anti-money laundering terms, you’re at the right place. This comprehensive glossary can serve as your go-to source.
Below is a list of frequently used acronyms and terms, along with their definitions. Financial crime is a dynamic industry, so we’re adding new definitions regularly. Bookmark this page to check out new terms.
Account takeover (ATO) - Account takeover, one of the fastest-growing cybersecurity threats today, is a type of identity theft where a victim's account access is compromised by a malicious third party who takes over account control online.
Anti money laundering (AML) - Anti money laundering is defined as the rules, laws, regulations, and procedures aimed at discovering illicit funds disguised as legitimate income.
Anti-Money Laundering (AML) Software - Software that is designed to help financial institutions (FIs) and other organizations detect and prevent money laundering, terrorist financing, and other financial crimes are known as anti-money laundering (AML) software. This software is used by banks, financial institutions, fintechs, money service businesses, insurance companies, and other organizations that are vulnerable to financial crimes.
Application fraud - Application fraud is a type of identity theft where a criminal applies for credit cards, bank accounts, loans, or tax rebates using a stolen identity.
Appointed Representative - An appointed representative (AR) is sanctioned by the FCA and can be either a firm or person who acts as an agent for a firm directly authorised by the FCA and runs regulated activities. Known as the AR’s 'principal', this firm is in a contractual relationship where the principal firm takes regulatory responsibility for the AR, ensuring it meets FCA requirements.
Approved Reporting Mechanism - Investment firms are required to report their transactions to a National Competent Authority (NCA) on a T+1 basis according to MiFID II. Approved Reporting Mechanisms (ARMs) reports these transactions to an NCA or ESMA [(Article (4)(1)(54) MiFID II)] on behalf of MiFID Investment Firms. They are required to validate the transaction reports (Article 26 of MiFIR). These entities, like CTPs and APAs, are in a new category and did not exist under MiFID I.
Artificial Intelligence (AI) - AI (or Artificial Intelligence) is machine intelligence that simulates human intelligence and is used to accelerate, automate, and enhance decision making.
Asset misappropriation - Asset misappropriation is when an employee, or other person entrusted to manage assets and interests of a company, steals assets from a business. Common asset misappropriation schemes are skimming, which is when cash is stolen before it enters the company's accounting system, offering false discounts to customers and pocketing excess funds, or theft of goods that could be anything from office supplies to expensive equipment.
Automated Clearing House (ACH) - The automated clearing house (ACH), run by Nacha (formerly known as the National Automated Clearinghouse Association), is an electronic funds-transfer system that facilitates financial transactions in the U.S.
Bank Secrecy Act (BSA) - The Bank Secrecy Act (BSA), also known as the Currency and Foreign Transaction Reporting Act of 1970, required banks to keep certain records and report large currency transactions, but over time, it's been amended to include requirements to report suspicious activity to detect and deter illicit finance, track criminal activity, and secure the financial system's safety.
Batch Processing - Batch processing is when transactions are processed in a group or batch without user interaction. This makes batch processing different from transaction processing, which requires a user processing a transaction one at a time. Unlike real-time processes that must occur immediately, administrators can postpone batch processes.
Batch Screening - The ability to screen multiple customers in one batch, ideally having the ability to screen a customer base using different search parameters based on the risks they pose without increasing false positives or misidentifying risk.
Beneficial Ownership and Ultimate Beneficial Owner (UBO) - A beneficial owner, including ultimate beneficial owner (UBO), is a person or group of individuals with the power to vote or influence decision-making regarding a security (such as shares of a company.) They enjoy the benefits of ownership, though the title to their property is often in another name.
Behavioral Analytics - Behavioral Analytics is a method to detect individual behaviors using computer-based systems, identifying trends and patterns.
Best Execution - Investment firms have the duty of best execution where they carry out orders on behalf of clients, ensuring the best execution possible. For financial firms, MiFID II has increased the Best Execution requirements: On all trades and orders, firms must provide evidence that they were acting in their clients’ best interests. This requires them to complete Transaction Cost Analysis (TCA) on their trading activity in addition to submitting RTS 27 and RTS 28 reports.
Blacklist - In finance, blacklist is a list of people, organizations or countries, either individuals or groups, who may have defaulted their debts after a series of nonpayment, making it more difficult for them to apply for financial services. Banks or financial institutions will deny credit and loans to anyone blacklisted.
Business Email Compromise (BEC) fraud - Business email compromise (BEC) is a type of email cybercrime scam where criminals gain access to critical business information or take money through email-based fraud. A common scam is "CEO fraud" where an employee receives a fake email from the CEO requesting funds be transferred to an account immediately.
Cardholder - The person who has a credit or debit card is considered the cardholder.
Cash-Intensive Business - Businesses that receive a significant amount of receipts in cash, such as a restaurant, grocery, or convenience store, is a cash-intensive business.
Commodity Futures Trading Commission - The Commodity Futures Trading Commission (CFTC) is a U.S. Government independent agency that regulates the U.S. derivatives markets. The role of the CFTC is to encourage competitiveness and efficiency in the derivatives markets, ensuring their integrity. The agency is also responsible for mitigating abusive trading practices and fraud, protecting market participants against manipulation, and ensuring the financial integrity of the clearing process.
Communications Surveillance - Communications Surveillance is the process of monitoring and analyzing communications within the financial industry. Examples of communications include phone calls, emails, chats, and other electronic communications. This type of surveillance is conducted to detect any potential violations of regulatory requirements, procedures, or policies.
Compliance - For financial institutions, compliance is following a set of internal and external regulatory rules at national and global levels to stop crimes, avoid penalties, and maintain business reputation.
Compliance risk - Compliance risk is the level of threat posed to a company's earning or capital due to violation or nonconformance with laws, regulations, or prescribed practices, which can result in fines, payment for damages, and voided contracts.
Conduct Risk - Conduct risk refers to the risk of inappropriate behavior or conduct by individuals or entities operating in the financial industry where their actions might result in harm to customers or investors or affect the integrity of financial markets. Conduct risk management focuses on identifying, mitigating, and preventing inappropriate conduct or behavior that rises to the level of misconduct.
Conflicts of Interest - A conflict of interest occurs when an individual or entity has a clash between self-serving interests and their professional duties or responsibilities, which can affect judgment and influence decision-making. Alternately, it is incompatible concerns and aims between two different parties, such as elected officials and corporate lobbyists.
Consolidated Tape Provider - A Consolidated Tape Provider (CTP) is an entity that is authorized to collect trade reports from regulated markets (MTFs, OTFs and APAs) and combine them into a continuous 'consolidated tape', providing volume and price data per financial instrument.
Consumer Duty - Consumer Duty is a regulatory initiative proposed by the FCA (Financial Conduct Authority.) It aims to establish a financial institution’s (FI) duty of care when offering financial products and services to consumers. FIs are to act in the best interest of consumers. This initiative is designed to ensure that consumers receive fair and transparent information, and that FIs avoid practices that cause harm to consumers but also prioritize consumers' interests.
Control Effectiveness - Sometimes referred to as preventative controls, the term control effectiveness (CE) is the total effectiveness of all controls acting on a particular risk, including specific controls affecting the likelihood of the risk.
Control Room - The control room monitors and controls the flow of confidential information between a firm’s private, advisory side businesses such as investment banks and its public side such as sales or trading. The control room’s primary responsibility is to preserve the integrity of a firm's information barriers.
Correspondent Banking - Correspondent banking allow domestic and foreign banks in different countries to provide payment services to each other, making it easier to move funds. Correspondent banks are a liaison between two respondent banks who may not have a formal relationship with one another.
Currency Transaction Report (CTR) - The currency transaction report, or CTR, is a mandatory report that U.S. financial institutions must file with Financial Crimes Enforcement Network (FinCEN) that outlines deposits, withdrawals, exchange of currency, or other payment or transfer, by, though or to the financial institution when the transaction exceeds more than $10,000.
Customer due diligence (CDD) - Customer due diligence (CDD) involves doing a series of background checks and screening processes to verify a customer's identity and create a risk profile.
Customer fraud - Customer fraud is when fraudsters pose as customers and deceive a business to commit a financial crime, such as using forged currency or another person's payment card to buy goods and services or to get a line of credit they use without intending to pay back.
Customer Relationship - Customer relationship is the end-to-end process that includes all interactions between a business and its customers.
Designated Categories of Offense - Designated categories of offence include participation in organized crime, racketeering, terrorism, human or wildlife trafficking, narcotics or other illicit activity that violates the laws of governments.
Detection Management Capabilities - The ability to manage all financial traffic from a single consolidated interface; a central monitoring point for compliance officers and auditors.
Dodd–Frank Wall Street Reform and Consumer Protection Act - U.S. federal law Dodd-Frank, enacted in 2010, regulates the financial markets and protects consumers. This law introduces rules and places obligations on financial institutions to prevent financial crises such as the 2008 crash.
Domestic Transfer - A domestic transfer is any wire transfer where both the originator and beneficiary are located in the same jurisdiction at the time of transfer initiation.
Dual-Use Goods - Dual-use goods are heavily regulated items that can be use for both civilian and military applications.
eComms Surveillance - eComms Surveillance refers to the electronic communications surveillance within the financial industry that is conducted to identify potential regulatory violations of a firm’s internal policies or regulatory requirements. Examples of eComms surveillance includes instant messages, social media posts, emails, and other electronic communications.
Electronic Funds Transfer (EFT) - Any transfer of funds other than a transaction from a paper instrument such as check or draft that is initiated through an electronic terminal, phone, computer, or magnetic tape and authorizes a financial institution to debit or credit an account is an electronic funds transfer.
Electronic Money (E-Money) - Electronic money, or E-money, is an electronic payment product stored in banking computer systems that is backed by fiat currency (unlike cryptocurrency) that is used in place of physical currency, such as PayPal or Square.
Enhanced Due Diligence (EDD) - Enhanced due diligence is a holistic, risk-based monitoring process that exposes third-party risks across Political, Economic, Socio-cultural, Technological, Legal and Environmental (PESTLE) categories.
European Market Infrastructure Regulation - European Market Infrastructure Regulation (EMIR) introduced in July 2012 and updated most recently in July 2019 is a regulatory framework. Its purpose is to reduce the systemic risk for derivatives and OTC derivatives by requiring investment firms to adhere to rules and reporting requirements.
European Securities And Markets Authority - As an independent EU authority, the European Securities and Markets Authority (ESMA) assesses risks to investors, markets, and overall financial stability.
False positive - A false positive is an alert generated by surveillance processes that indicates high-risk behavior. It facilitates an investigation to determine if the alerted behavior carries high, low or no risk.
FedNow - FedNow is the instant payment service that enables financial institutions of any size in the U.S. to provide safe and efficient instant payment services in real time, 24/7 year-round.
Fiat money - Fiat money is a national currency whose value is not from physical commodities like gold or silver, rather, it is derived from a country's promise to pay it back.
Financial Action Task Force (FATF) - The Financial Action Task Force (FATF) is an inter-governmental policymaking body that combats money laundering and the financing of terrorism by establishing international standards, and developing and promoting policies on nation and international levels.
Financial Conduct Authority - As an independent financial regulatory body of the U.K., the Financial Conduct Authority (FCA) regulates the conduct for 59,000 financial firms and markets in the U.K. For over 18,000 firms, it’s also the regulator. The FCA aims to make markets work well for individuals, businesses, and for the overall economy.
Financial Industry Regulatory Authority - The non-governmental Financial Industry Regulatory Authority (FINRA) is an independent organization writing and enforcing rules that govern registered brokers and broker-dealers in the U.S.
Financial Intelligence Unit (FIU) - A financial intelligence unit is an investigative unit established by individual countries that centralizes the gathering of suspicious activity reports related to financial crime activity that's shared with relevant government agencies.
Financial Statement Fraud - Financial statement fraud is when an individual deliberately alters a company's financial statements to mislead investors regarding a company's financial position, performance, or cash flow, also known as "cooking the books."
First line of defense - A first line of defense is composed of business owners who identify risk and execute actions to manage and mitigate them.
Fraud detection - Fraud detection is the act of identifying actual or attempted fraud within an organization.
Fraud management - Fraud management includes the methods used to detect and prevent fraud, from identifying where fraud can occur and assessing risk tolerance to deploying systems to mitigate fraudulent activities.
Fraud prevention - Fraud prevention is a firm's process or activities they implement to deter, detect, and resolve fraudulent incidents.
Front office - The front office is a revenue generating function within an investment bank. It provides client services through trading activities in the wholesale markets and sales.
Front Running - Front Running is when a trader uses privileged information not available to the public, such as pending customer orders, to trade on their own behalf. It’s an unethical trading practice that involves using non-public information to gain an unfair advantage, which is not just unethical, but potentially illegal.
Gatekeepers - In financial context, a gatekeeper is a specialist advisor who facilitates financing solutions between businesses and investors.
General Data Protection Regulation (GDPR) - The General Data Protection Regulation (GDPR) is a law approved by the European Union (EU) that sets guidelines for the collection and processing of personal information. It establishes data privacy as a human right (including the right to access, correct, erase, or port personal data), baseline requirements for data protection, and provides standardized application of data protection rules across the EU.
Governance - Governance is the way a company collects, manages, monitors, and controls financial information, including how to track transactions, manage performance and control data, compliance, operations, and disclosures.
Identity fraud and identity theft - Identity fraud is using stolen information to conduct fraudulent transactions. Identity theft is the act of stealing personal, private, or financial information to construct the fake identity subsequently used to commit fraud.
Indication Of Interest (IoI) - An Indication of Interest (IoI) is the expression of interest in buying a security without entering into a formal agreement.
Insider Dealing - Insider Dealing, also known as insider trading, refers to the illegal practice of using non-public, material information unavailable to the general public to trade securities. Insider dealing involves individuals with access to privileged information who are buying or selling securities, such as stocks or bonds, which gives them an unfair advantage over other investors who don’t have access to privileged information.
Integration phase (of AML) - The integration stage is the final step of a money laundering process where money from illicit activities is reintroduced to the legal economy.
International Monetary Fund (IMF) - The international monetary fund (IMF) is an international financial institution consisting of 190 countries and major financial agency of the United Nations that's headquartered in Washington D.C. It's mission is to foster global monetary cooperation, increase financial stability, facilitate trade, and reduce poverty.
Know Your Customer (KYC) - Know your customer (KYC) is a set of guidelines firms are required to follow that involve verifying the identity, suitability, and risks involved with maintaining a business relationship with a customer.
Know Your Employee (KYE) - Know your employee (KYE) is a set of actions where management determines an employee's background to identify if their history relates to money laundering activities.
Layering phase (of AML) - In this second stage of money laundering, the layering phase, money illicitly obtained is moved and mixed with legitimate funds, hiding its origin.
Lexicon - A Lexicon is a set of key words and phrases usually used to detect misconduct and market abuse during monitoring of electronic and audio communications.
Lexicon Based Model - A Lexicon Based Model is a rules-based model that is used to govern the surveillance of electronic and audio communications activities through keyword detection.
Limited Liability Company (LLC) - A common business structure in the U.S., a limited liability company, or LLC, protects owners from personal responsibility for its debts or liabilities. It's easier to set up than a corporation while providing more flexibility and protection for its investors.
Machine Learning - Machine learning is a component of artificial intelligence that enables systems to automate data analysis using algorithms. With machine learning, systems can automatically learn and improve without being explicitly programmed to execute specific tasks.
Market Abuse Regulation - Market Abuse Regulation (MAR), effective as of 2016, aims to increase investor protection and market integrity for capital raising across the securities markets. MAR builds on 2002’s Market Abuse Directive (MAD), which was adopted in 2005. MAR extends the scope of new markets, behaviors and platforms. MAR’s main objective is to introduce clear-cut rules around market manipulation, insider dealing, and unlawful disclosure of inside information to enhance investor protection, making European markets more secure. MAR also enacts new rules on how financial institutions must prevent and detect these illegal practices.
Markets In Financial Instruments Directive - European Union’s Markets in Financial Instruments Directive (MiFID) is a set of financial regulations that attempt to safeguard and enhance financial markets efficiency. MiFID II, the second iteration of these rules effective as of January 3rd, 2018, expands MiFID. This set of rules aims to increase transparency on tradable securities (RTS23), improve accuracy of timestamps (RTS25), regulate high-frequency trading (HFT), provide regulators with more capability to regulate MAR, and mitigate more trading on to regulated venues in addition to remit of the original directive.
Market In Financial Instruments Regulation - Market In Financial Instruments Regulation (MiFIR) is an EU regulation, accompanying MiFID II. This regulation enforces many obligations on organizations, with one of the key requirements being pre- and post-trade transparency that requires firms to publicly disclose certain quotes and trades.
Markets Surveillance - Markets Surveillance involves monitoring and analyzing trading activities and market data with the intent to detect any unusual or potentially manipulative activities that might have an impact on the integrity and fairness of financial markets. Typically carried out by regulatory bodies, exchanges, or financial institutions, markets surveillance aims to identify any potential market abuses.
Marking the Close - Marking the Close is a manipulative practice where a trader buys or sells orders just before the market closes to artificially inflate or depress the closing price of a security. This practice aims to influence the net asset value (NAV) of investment vehicles, such as mutual funds, which are calculated based on closing prices of the underlying securities.
Memorandum of Understanding (MOU) - A memorandum of understanding, or MOU, is a formal document outlining an agreement between two or more parties.
Mirror Trading - Mirror trading is a type of automated trade that removes emotion from trading and replicates or reflects the strategy of a specific trader, copying (e.g., mirroring) their trading strategies.
Monetary Instruments - Monetary instruments, such as stocks, bonds, debentures, treasury bills, checks and money orders, are securities and negotiable instruments in bearer form where ownership is conveyed via physical possession.
Money Laundering - Money laundering is a financial crime and illegal process of making money generated by illegal activity appear to come from a legitimate source, so "dirty" money is made "clean" in the money laundering process.
Money Laundering in Capital Markets -Money laundering is a financial crime and illegal process of making money generated by illegal activity appear to come from a legitimate source, so "dirty" money is made "clean" in the money laundering process. In the context of capital markets, money laundering might involve using complex financial transactions or investment activities to conceal the true purpose or source of funds, such as profits from criminal activities.
Money Laundering Reporting Officer (MLRO) - The money laundering reporting officer (MLRO) oversees a financial institution's compliance with Financial Conduct Authority (FCA) rules on money laundering.
Money mules - Money mules are people who knowingly or unknowingly transfer or move money illegally on behalf of someone else. Money mules are commonly use in money laundering.
Money Order - A money services business (MSB) is an organization that transmits or converts money, such as currency exchange, check cashing, issuing traveler's check or wiring money.
Money Services Business (MSB) - Monitoring in the financial sector is periodic tracking of an activity's progress by gathering and analyzing data collected on a daily, weekly, monthly, quarterly, or annual basis.
Monitoring - Monitoring in the financial sector is periodic tracking of an activity's progress by gathering and analyzing data collected on a daily, weekly, monthly, quarterly, or annual basis.
Natural Language Processing - Natural Language Processing deals with the interactions between human language and computers. Using rule-based and statistical models, machine learning, and deep learning techniques, NLP is when computers are programmed to process and analyze large amounts of natural data in the same way as humans do, with focus on understanding intent and sentiment.
Nested Account - Nested accounts are foreign bank accounts residing within another foreign bank account and tied to a corresponding U.S. account. Nesting is a common practice, for example, a U.S. bank may have an established correspondent account with a service provider foreign bank.
Non-Governmental Organization (NGO) - A non-governmental organization (NGO) is a legally constituted organization that functions independently of any government, usually a non-profit entity such as civil society organizations.
Offshore - Offshore is a common term used in banking and financial sectors to indicate a location outside of one's home country that might have different regulations to meet, generally an island nation.
Offshore Alert Center Model - An Offshore Alert Center Model is an operating model that organizations use to establish a team in other geographical locations. Typically, these teams conducting surveillance will perform a first-level review of electronic and audio communications alerts that are triggered by the lexicon-based model.
Operational Risk - Operational risk is the summary of uncertainties and hazards a company faces when conducting daily business activities.
Originator - The primary source of financing that can be a person or entity, for example, a bank is the originator of a mortgage loan.
Payment fraud - Payment fraud is an illegal transaction where victims are manipulated into sharing personal payment information or it's stolen, allowing criminals control to divert money or payments.
Payment Screening - Unlike name screening, payment screening is focused on screening current customer payment messages before processing them using predefined templates, codes, and acronyms to describe specific information.
Personal Account Dealing - Personal account dealing is when a financial institution’s employees or insiders trade or conduct investment activities from their personal accounts. This practice can evolve into potential abuse of insider information or create conflicts of interest.
Phishing scams - Phishing is a type of social engineering attack where a criminal deceives targets into revealing information, such as passwords and credit card numbers, to steal or damage sensitive data. There are several types of this scam: spear phishing that targets one person in a business, malware phishing where scammers plant malware disguised as a trustworthy attachment like a bank statement in an email, and smishing, where a scammer sends a text message that looks like it’s from a trusted source, such as FedEx or Amazon, to get information.
Placement phase (of AML) - The placement phase in anti-money laundering- (AML) is the first stage of money laundering where funds from a crime are entered into a legitimate financial system.
Politically Exposed Person (PEP) - In financial regulation, a politically exposed person (PEP) is someone who is entrusted with a high-profile public function that represents a higher risk, as they could be potentially involved in bribery and corruption due to their position or influence that they have. Examples are elected officials or world leaders.
Ponzi Scheme - Named after 1920s businessman Charles Ponzi, this form of investment fraud targets investors who are led to believe in the success of a nonexistent enterprise offering the promise of quick returns and low risk, where new income is marked as profit from legitimate transactions. New funds are used to pay original investors returns to delay discovery. Ponzi schemes can run undetected for years until a large numbers of investors attempt to cash out or the criminal disappears with funds.
Predicate Crimes - In financial context, predicate crimes are offenses that generate monetary proceeds and are part of a larger crime. An example is money laundering to finance terrorist activities.
Promotional abuse - Promotional abuse is a type of online fraud where customers take advantage of promotional offers from businesses, such as a sign-up bonus where a customer uses multiple accounts to get multiple bonuses, referral bonus where they refer 'friends' (themselves) many times to receive the awards, and vouchers where fraudsters break the simple discount code to receive multiple discounts.
Pump and Dump - ‘Pump and dump’ is a practice that fraudulently inflates a security’s value. A trader spreads false or misleading information to artificially inflate the price of a security, then sells it to unsuspecting investors at the inflated price. This fraudulent scheme is price manipulation designed to increase the fraudster’s profits, leaving other investors to suffer losses.
Real Time Gross Settlement Systems (RTGS) - Real-time gross settlement (RTGS) systems are specialist funds transfer systems where money or securities transfers take place from one bank to any other bank in real-time and on a gross basis, so settled on a one-to-one basis without a wait time or bundling with any other transaction.
Real-Time processing - Real-time processing is data processing occurring as a user inputs a command or data.
Red Flag - Generally, a red flags is a method of identifying or drawing attention to a problem that must be dealt with, but in anti-money laundering terminology, a red flag is a warning sign that indicates a potentially suspicious or risky transaction or activity.
Regulation Best Interest (Reg BI) - Regulation Best Interest (Reg BI) a regulatory rule adopted by the U.S. Securities and Exchange Commission (SEC). It establishes a new standard of conduct for broker-dealers when making recommendations about securities transactions or investment strategies to retail customers. Under Reg BI, broker-dealers must act in the best interest of their retail customers, meaning they must disclose any conflicts of interest that might be viewed as influencing their recommendations and put their customers' interests ahead of their own.
Reputational Risk - Anything that threatens a company's public perception, their good name or standing, is considered reputational risk. Examples include negative publicity, data breaches, exposed unsafe practices or policies, or other disclosures that can result in fines or penalties, profit loss, or customer churn.
Risk Appetite - The type and amount of risk a person or an organization is willing to pursue, retain, or take is risk appetite.
Risk Assessment - Risk assessment is a systematic process to evaluate the risks involved with a project activity or undertaking.
Risk-Based Approach - A risk-based approach is identifying and prioritizing risks to your organization to inform compliance controls, policies, and procedures.
Rule Based Alerting Systems - Rule Based Alerting Systems are applications and tools that are designed to detect misconduct in electronic and audio communications using a set of defined rules functions.
Sanctions - Sanctions are penalties for disobeying a law or rule. Financial sanctions are applied by governments to restrict or prohibit trade with companies or individuals who are engaged in breaches of international law, human rights abuses, or other forms of crime such as cyberattacks.
Sanctions Compliance - Sanctions compliance is adhering to sanctions rules by knowing who your company conducts business with and avoiding selling goods and services to anyone who is sanctioned.
Sanctions List - Sanctions Lists are official government lists of persons and entities subject to restrictive or comprehensive measures under international and domestic sanctions regimes. These lists are updated regularly to address the ever-changing sanctions landscape, and financial institutions are required to check them to avoid conducting business with sanctioned people or entities.
Second Line of Defense - Typically consisting of compliance and risk functions, the role of the Second Line of Defense is to establish policies and processes to detect and mitigate risk, setting the standard for risk management.
Securities And Exchange Commission - As an independent agency of the U.S. federal government, the Securities and Exchange Commission (SEC) has the primary responsibilities to enforce the federal security laws and regulate the securities industry. Their three aims are to maintain fair, orderly and efficient markets, protect investors, and facilitate capital formation.
Securities Finance Transaction Regulation - Securities Finance Transaction Regulation (SFTR) is a body of European legislation that aims to regulate securities lending and repo and enhance the transparency of the securities financing markets by requiring those who enter into securities financing transactions (SFTs) to report the SFT to a trade repository. SFTR was introduced in April 2020 for credit institutions, investment firms and applicable third-country firms.
Senior Managers and Certification Regime - The Senior Managers and Certification Regime (SMCR) aspires to make individuals more accountable for their conduct and competence while also reducing harm to consumers and strengthening market integrity. The SMCR establishes a new accountability framework focused on senior management, and it requires firms to take more responsibility for employees’ behavior. On December 9th, 2019, the regime was extended to all authorized firms.
Shell Bank - A shell bank is a domestic or foreign bank that doesn't have a physical address or location in a country where it is incorporated.
Shell Company - A shell corporation is a type of corporation that doesn’t have active business operations or significant assets. Shell companies are not illegal, but they can be used to disguise business ownership from law enforcement or the public.
SIM swap scam - The SIM swap scam is an account takeover fraud also known as port-out scam, SIM splitting, Smishing and simjacking, and SIM swapping. This scam targets weaknesses in two-factor authentication or two-step verification processes where the second step is a text message or call to a mobile phone.
Social engineering - A type of fraud where the perpetrator uses deception to manipulate individuals into divulging personal, sensitive, and confidential information, then uses it for fraudulent purposes. Common types of social engineering scams are baiting, scareware, quid pro quo, and multiple phishing scams.
Spoofing and Layering - Spoofing and Layering are illegal trading practices that aim to create a false impression of supply or demand or involve placing fake orders in the market to manipulate prices. Spoofing is the practice of placing orders with the intention of cancelling them before they are executed. Layering involves placing multiple orders at different price levels, creating a fake appearance of market activity.
Structuring - Structured finance is a complex, more risky financial instrument offered by a few lenders that is used by sophisticated borrowers to borrow money in situations where a simple, straightforward loan will not suffice.
Suitability - Suitability refers to the requirement that financial products or services are deemed suitable based on a customer’s individual financial situation, investment objectives, risk tolerance, and other relevant factors. Financial advisors or professionals will conduct suitability assessments to ensure that customers are offered appropriate recommendations.
Suspicious Activity - In finance, suspicious activity is when a financial institution suspects that attempted or conducted transactions might involve funds acquired through illegal activity or meet conditions that indicate attempts to hide assets, evade law, or subvert reporting requirements.
Suspicious Activity Report (SAR) - The suspicious activity report is a standard tool provided under the Bank Secrecy Act (BSA) of 1970 that monitors suspicious activities not flagged in other reports. Financial institutions, and anyone associated with their business, must file a SAR with the Financial Crimes Enforcement Network (FinCEN) whenever there's a suspected case of money laundering or fraud.
Suspicious Transaction Activity Reporting (STAR) - The suspicious transaction activity report (STAR) is another name for Suspicious Activity Report (SAR), a document that used by financial institutions to report suspicious activity to the Financial Crimes Enforcement Network (FinCEN).
Suspicious Transaction and Order Report - Suspicious Transaction and Order Report (STOR) is a process to report suspicious transactions when there are ‘reasonable grounds’ to suspect the transaction or order potentially constitutes market abuse.
Synthetic fraud or synthetic identity fraud - A common form of identity theft, synthetic fraud is when a perpetrator combines real information obtained illicitly and combines it with fake information to create a new, false identity that can be used to execute scams, such as borrow money or make purchases.
Tax Fraud - This type of fraud is when an individual or entity deliberately falsifies information on a tax return to limit their tax liability, often to avoid paying the full tax obligation.
Trade Reconstruction - Trade Reconstruction is a process of reconstructing and analyzing trade activities and related communications during a particular trade or trading period, with the goal of investigating and understanding the sequence of events and actions that occurred at that time. Trade reconstruction is often carried out as part of regulatory investigations or internal reviews, ensuring compliance with regulatory requirements and internal policies.
Trade Surveillance - Trade Surveillance is the process of monitoring and analyzing trade activities, including orders, executions, and other trade-related data. The goal is to identify any potential violations of internal policies or regulatory requirements relating to trading activities. Trade surveillance is conducted to detect potential market abuses, insider trading, or other forms of trading misconduct.
Trading Venue - A trading venue is an official venue where multiple third-party buyers and sellers trade financial instruments.
Transaction Monitoring - Financial institutions monitor transactions made by customers, in real-time or on a daily basis, using tools or processes as part of their transaction monitoring program that not only looks at current transactions, but also analyzes a customer's historical information and account profile to spot atypical behavior, assess risk level, or predict future activity.
Transaction Monitoring and Filtering Programs (TMPs) - Transaction Monitoring and Filtering Programs (TMPs) combine transaction monitoring with a watch list filtering program, enabling financial institutions to monitor transactions while also scanning source data against published watch lists to avoid conducting business for or with sanctioned entities.
Typology - In terms of anti-money laundering and fraud, typologies are the techniques, methods, and schemes that criminals will use to execute scams and conceal, launder, or move illicit funds.
Unique Trade Identifier - A Unique Trade Identifier (UTI), under the EMIR Reporting Framework, is a mandatory field intended to identify a derivatives contract. There are additional provisions which specify which counterpart is obligated to generate it and how the UTI must be communicated between counterparts.
USA PATRIOT Act - The USA PATRIOT Act, "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001", is a law passed on October 26, 2001, expanding authority of federal officials to fight terrorism. The Act's purpose is to deter and punish terrorist acts in the United States and enhance law enforcement investigatory tools. Sections of the USA PATRIOT Act affect financial institutions, from Section 311 to 362.
Virtual Currency - A subset of digital currencies, virtual currency (VC)is a largely unregulated, digital representation of value that is stored and transacted through designated software, mobile or computer applications. Available only in electronic form, virtual currency is issued by private parties or groups and transacted over secure, dedicated networks.
Voice-To-Text Solutions - A computer-based process, Voice-To-Text Solutions recognize spoken language and translate it into text.
Wash Trading - Wash Trading is a form of market manipulation where a trader creates the illusion of trading activity by simultaneously buying and selling the same security, artificially increasing trading volume. Traders who engage in wash trading attempt to manipulate prices or create a false impression of market activity.
Wire Transfer - Electronic transfer of funds via a network of banks or transfer agencies located around the world. The sender initiates the transfer of funds to a receiver through a secure system such as Fedwire or SWIFT.