How transaction monitoring works in Saudi Arabia
- azakaw
- Oct 1
- 11 min read
Updated: 12 hours ago
Transaction monitoring works in Saudi Arabia as the country’s financial sector undergoes a rapid transformation driven by fintech adoption, cross-border trade, and rising investment flows.
With this growth comes stricter oversight: the Saudi Central Bank (SAMA) has tightened regulations to combat economic crime, pushing compliance teams to modernise their systems and ensure every riyal is properly monitored.
This article breaks down how transaction monitoring works in Saudi Arabia, how to identify key risks, and the penalties for non-compliance. It also explains the AML Law requirements for filing Suspicious Transaction Reports (STRs) and looks at the new technologies that may shape the future of AML in the Kingdom.
Key Takeaways about Transaction Monitoring in Saudi Arabia (KSA) |
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Understanding transaction monitoring in Saudi Arabia
The transaction monitoring in Saudi Arabia is an ongoing obligation for all financial institutions. This doesn't just mean checking up on outgoing payments.
They also need to understand who is making each transaction, where the money is coming from (or going to), and why it is being made.
Transaction monitoring is a vital part of the country's strategy for combating money laundering and terrorism financing.
The aim: to identify any activity that falls outside a customer's normal behavior profile as soon as possible.
Manual monitoring of customer activity during transaction review is no longer sufficient.
Nowadays, financial institutions use specialized software that runs continuously in the background. Such systems use rules engines to assess each transaction as it happens.
They may also employ artificial intelligence to detect patterns or anomalies that might indicate suspicious behavior, which humans might miss.
Regulated entities need to implement transaction monitoring systems that can instantly associate customers with their transactions and verify them before processing any payments.
The importance of transaction monitoring in Saudi Arabia
Financial integrity provides a foundation for Saudi Arabia's ambitious economic plans. As the emirate embraces foreign investment and digital banking, it must maintain trust in its financial system; that requires keeping crime out.
To this end, local banks use transaction monitoring to detect and prevent money laundering and other illicit activities.
Doing so defends the wider economy against criminal influences, but it also plays a role closer to home. That's protecting institutions from losses caused by fraud or theft.
This form of monitoring helps identify theft cases such as account takeovers and synthetic identities at an early stage, which can have serious financial repercussions for those affected.
Having robust transaction monitoring procedures also serves another very important purpose: it boosts confidence among foreign partners when trading with or investing in Saudi Arabia.
By making clear that there are stringent controls at work domestically (as well as internationally), this kind of compliance activity fosters a sense of security. It helps do business globally while staying true to its own regulations and values.
Regulatory framework for AML in Saudi Arabia
Compliance with anti-money laundering (AML) laws and regulations is vital in Saudi Arabia. At the centre of AML compliance in KSA is the AML law and its 2022 amendments.
These changes introduced more comprehensive definitions and stricter penalties for AML violations.
SAMA is responsible for supervising banks and fintech companies to ensure they comply with AML laws and regulations. The authority does this through a range of powers, including issuing regulations and guidelines and conducting inspections.
FIU KSA is the central AML intelligence unit in Saudi Arabia. It receives, analyzes, and disseminates AML information. Financial institutions file suspicious activity reports (SARs) with the FIU KSA.
Saudi Arabia is committed to adhering to the FATF Recommendations. As a result, the country's AML framework is designed to meet international standards.
Therefore, any organization operating in Saudi Arabia must ensure its AML program complies with SAMA's regulations and international standards.
How transaction monitoring works in KSA
What transactions are monitored?
All financial transactions are monitored in Saudi Arabia: wire transfers, cash deposits, currency exchanges, and cryptocurrency transactions.
Transaction monitoring involves checking whether a transaction is consistent with what is known about a customer.
For example, if a student's bank account receives a SAR 1 million transfer, this would be suspicious. Transaction monitoring is an ongoing process.
Financial institutions in Saudi Arabia must continuously monitor transactions. This enables them to detect suspicious transactions that may be related to terrorism financing.
Detecting suspicious patterns: what triggers alerts
Transaction monitoring is used to detect various types of suspicious activity, including smurfing, pass-through transactions, and transactions involving high-risk jurisdictions.
For example, if a large amount of money is transferred to an account in small increments to avoid detection, this is smurfing.
Similarly, if money is deposited into an account and then immediately withdrawn, this may be a pass-through transaction.
If funds are rapidly transferred from Saudi Arabia to a high-risk jurisdiction without a valid business reason, this could also trigger an alert.
When an alert is triggered, an AML analyst will investigate further. The purpose of transaction monitoring is to identify suspicious transactions that require further investigation.
Integration with Know Your Customer (KYC) and risk scoring
Transaction monitoring is not effective on its own. It needs to be combined with know-your-customer (KYC) procedures and customer risk scoring.
When monitoring transactions, it is important to consider the customer's risk profile.
For example, a transaction of SAR 50,000 may be normal for a large construction company. However, it could be suspicious if made by a freelance graphic designer.
In Saudi Arabia, institutions are required to adopt a risk-based approach to AML compliance. This means they must assess the risk posed by their customers and assign a risk score accordingly.
For example, a customer with a complex ownership structure or a politically exposed person (PEP) may be assigned a higher risk score. If there is a discrepancy between the customer's risk score and the transaction monitoring results, an alert will be triggered.
Related content: What does KYC mean in fintechs?
Examples of transactions that raise red flags
Round numbers like SAR 100,000 in a transaction might catch your attention, since legitimate commercial invoices rarely record them.
Another glaring omission in trade finance deals within the emirate is the case of a textile importer paying a steel manufacturer.
Additionally, pay attention to unnatural transaction-monitoring alerts indicating that multiple unrelated customers have accessed their accounts from the same IP address or device. This often points towards criminal syndicates running mule farms.
Who needs to implement transaction monitoring systems in KSA?
In Saudi Arabia (KSA), transaction monitoring systems are required for banks, financial institutions, fintech companies, digital wallets, insurance firms, capital market entities, and DNFBPs such as real estate agents, lawyers, and gold traders.
Banks and financial institutions
Traditional banks bear the greatest responsibilities in this regard. It is at your institution that most of the Kingdom’s traffic is handled, and SAMA expects that you will have implemented the most sophisticated and automated compliance solutions for banks.
Banks are required to monitor both domestic SARIE transfers and incoming international SWIFT messages.
The standard anticipated is “real-time” or near-real-time intervention, whereby a payment that appears on a sanctions list can be stopped before it leaves your bank.
Fintech companies and digital wallets
The velocity of payments defines fintechs and payment service providers (PSPs), but it also exposes them to specific risks. Wallet top-ups, P2P transfers and merchant settlements all have to be monitored.
SAMA sandbox and licensing terms generally require that you have these controls in place before you go live.
Because fintechs serve unbanked or younger demographics, specialized rules are needed to detect account farming and rapid cross-border fund movements.
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Insurance firms and capital market players
It’s not just about payments. If you deal in insurance or capital markets (i.e., are regulated by the CMA), you have a different set of criteria to observe.
You must guard against early surrender of insurance policies, where the customer pays a penalty just to get a “clean” check returned.
In the capital markets, you need to watch for wash trading or market manipulation that may be used to cover money laundering. Although the underlying principles remain the same, there are specific red flags for every asset class.
DNFBPs: Real estate agents, lawyers, and gold traders
Designated Non-Financial Businesses and Professions (DNFBPs) are under increased scrutiny.
If you are in the business of selling gold or real estate or offering corporate services, then you will have to monitor the payments made by your clients.
Receiving large cash sums for expensive properties or jewelry poses considerable risks.
You are not expected to have banking-quality software, but you must have mechanisms in place to monitor and report suspicious cash activity.
The Ministry of Commerce & others will work with SAMA to ensure you comply with these rules.
Compliance for Law Firms
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Suspicious transaction reporting process in KSA
What qualifies as a suspicious transaction
If you suspect that a financial crime may have been committed, you don't have to wait until you have all the facts. You just need to have "reasonable grounds" for suspecting something.
For example, a customer who is unable to provide information about the origin of the money, becomes uncomfortable when you ask for identification, or cancels a transaction when asked for ID, is suspicious. Transactions that are economically illogical, like selling property for half its market value, can also be suspicious.
How and when to file an STR
Timeliness is key: after an in-house team identifies a suspicious transaction, it's obliged to file a STR with the Financial Intelligence Unit (FIU). In KSA, this must be done via the FIU's electronic portal SAFIU.
You should provide your analysis of the suspicious transaction. SAMA AML regulations specify that you must not notify your client that you have filed a STR (i.e., you must not "tip off" your client).
Obligations to retain & audit transaction data
SAMA & AML law requires you to retain transaction data for 10 years following completion or termination of the transaction.
You are required to keep it in a format that will enable you to provide it on request to the FIU (or other enforcement agencies). You must also keep a clear audit trail for all STRs, alerts, investigations & decisions.
This means documenting the reasons for closing alerts (i.e., not filing STRs), including the name of the officer who made the decision & when.
Failure to provide a legitimate reason for not filing a STR in the case of a suspicious transaction will leave you vulnerable to enforcement action.
Collaboration with the FIU and regulators
After a STR is filed, the FIU may contact you with a request for further information on the transaction (RFI). You should respond promptly.
You may be asked to review your monitoring criteria for suspicious transactions and red flags related to money laundering, and to report on such criteria periodically to regulators.
This demonstrates your commitment to preventing financial crime.
Challenges of implementing transaction monitoring in Saudi Arabia
Large volume of false positives
AML solutions in KSA are prone to generating a high number of false positives. Because of this, businesses in Saudi Arabia are vulnerable to AML compliance errors and to overlooking cases of money laundering.
If there are many of these alerts, your compliance team won't have enough time to investigate them thoroughly.
When there are too many alerts for them to investigate in depth, your compliance team will become "alert-fatigued": they won't be able to properly review them all.
Lack of integration between AML and core banking systems
Many banks in the region still use outdated technology. If your AML transaction monitoring software isn't fully integrated with your main banking system, then there will be gaps in data flow.
You may see the transaction but not the customer's new address, which they gave yesterday. This kind of isolated information creates obstacles to developing an all-inclusive customer risk profile, leaving potential risks open to oversight.
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Regulatory pressure and limited internal expertise
Regulations continue to evolve rapidly while skilled human resources remain scarce. Qualified AML officers are scarce within the emirate who know both sides.
That means local transaction monitoring regulations, Saudi Arabia, as well as technical know-how about the software!
Ensuring ongoing monitoring across the customer lifecycle
Checking up on customers at the sign-up stage is quite simple. It becomes even more challenging when this needs to go on for another 10 years!
Such continuous follow-up requires highly advanced systems that automatically and regularly update risk scores.
Most organisations do not update their KYC files properly, meaning they follow up 'low risk' individuals who have turned out to be 'high risk' CEOs running businesses that involve cash!
Compliance has a significant gap due to this 'set it and forget it' approach.
What are the penalties for non-compliance with KSA AML Regulations?
Examples of enforcement actions by SAMA or FIU
SAMA is known for taking legal actions openly & publicly.
They don't always provide press updates on all their penalties, but they do publish lists highlighting those they have fined in the banking and finance sectors for "breaches of AML/CTF regulations."
Such cases arise from failing to report STRs or from weak monitoring of transactions. The takeaway is: if there are any flaws in your system, you will be required to pay them.
Impact on licensing and operations
Being fined is costly, but having your license revoked is something you want to avoid at all cost.
SAMA can suspend or revoke your operating license if it finds you are not complying with adequate AML measures, including for fintechs and new entrants.
Administrative and criminal penalties
Penalties under the strict anti-money laundering law aren't limited to only the corporate body. They extend to individual members of top management who may face imprisonment terms of 10 to 15 years.
They face substantial fines of millions of Saudi Riyals if found guilty of money laundering, whether directly or indirectly through negligence.
Future of AML and transaction monitoring in KSA
Adoption of AI-driven AML solutions
Software will soon be able to learn customer behavior using advanced techniques like machine learning and AI.
This means AML in Saudi Arabia will become better at spotting money laundering – even new types that humans haven't thought of!
Greater cross-border regulatory cooperation
Regulators in Saudi Arabia will work more closely with their counterparts in other GCC countries (and around the world).
This will help them track suspicious cross-border transactions and make it harder for criminals to hide money.
Financial institutions may also see more data sharing between countries.
Read also: Transaction monitoring in Bahrain
Improving compliance among new fintech players
As KSA's fintech sector grows, the era of "startup exemptions" is ending. Now SAMA wants all fintech firms to meet high standards of financial crime compliance– similar to those used by big banks.
That means there will probably be fewer players overall (at least in the short term), with the ones that remain needing strong systems for monitoring transactions— an approach known as "safe onboarding."
FAQs
Who must report suspicious transactions in KSA?
Under Saudi laws, any person who carries out transactions with others or holds assets of clients must notify the FIU about such transactions (art 7 & 14).
How is transaction monitoring different from screening?
Screening happens before a relationship or transaction (checking names against sanctions lists). In comparison, transaction monitoring looks for abnormalities in the patterns over time by following customer transactions.
Does SAMA require real-time monitoring?
Yes. It expects near-immediate responses to electronic transactions, most particularly with cross-border and instant payments. This helps prevent sanctioned or blatantly illegal cash from leaving the bank (by blocking it).
What role does the FIU play in Saudi Arabia?
It acts as a national agency that gathers and interprets information concerning suspicious deals. Serving as a link between enforcement bodies and compliance departments, this unit is central in processing all unusual reports submitted under AML laws.
What tools help ensure compliance with AML requirements?
You need an automated AML solution that offers transaction monitoring, sanctions screening, and customer risk profiling. Popular global and local vendors offer software tailored to SAMA guidelines for transaction monitoring.
Can third-party providers handle monitoring duties?
While you may use third-party software, your dedicated AML compliance officer (MLRO) must have final oversight and decision-making power on all alerts and reporting within the Kingdom. In other words, the responsibility cannot be outsourced.
Conclusion
Transaction monitoring in Saudi Arabia used to be simple, but now it's very complex. It requires using lots of data and information. The authorities, including SAMA and FIU, expect companies to be on their toes at all times.
To do this well, businesses need advanced technology and a culture that takes compliance seriously, whether they have been around for a while or are new fintech startups.
If your business is considering upgrading its transaction monitoring system or entering the Saudi market for the first time, now is the time to get cracking.
Don't wait until your next audit: check for any weaknesses now! And make sure you have a risk-based approach to AML compliance. Ensure your rules are properly calibrated, that you have high-quality data, and that your team is ready and able to detect any suspicious transactions.
If you’re looking to integrate the best transaction monitoring software in Saudi Arabia into your workflow, book a demo with Azakaw today or get in touch with our customer support team.
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