2015/849- The European parliament and council’s constitution to prevent the financial system to be used for money laundering or financing of terrorism. Alterations off 648/2012 and annulment of the European Parliament and the council’s constitution 2005/60/EG and the commissions’ directive 2006/70/EG.

AML – Acronym for Anti Money Laundering. An increasingly important field and the regulatory demands for firms and banks are continuously being stepped up.

Alert Triggers – Users of IW AML can set the scope, alert triggers and thresholds all by themselves. Alert triggers can also be reprocessed on demand with the functionality of previewing before publishing alerts. The system has a risk administration tool where users can enter their risk assessments for the different entities such as types of customers, types of accounts and transactions and countries etc.

AMLD – Acronym for Anti Money Laundering Directive

Anti-Money Laundering –  Systems and actions taken to detect behavior or patterns which might be signs of attempts to launder money. Money laundering is when someone is trying to make money origin from criminal operations appear legit.

Beneficial Owner – The Fourth EU AML Directive states new rules on beneficial ownership identification and record keeping requirements regarding ultimate beneficial ownership. This means that a list of beneficial ownerships is to be made in every member state. The list will contain records of ultimate beneficial ownership reported by the obliged entities in that state

Case Management – The case management in InstantWatch offers functionality to gather information about one or several events in one place during the investigation and for documentation. In a case you can store alerts, comments, summaries, documents such as reports, emails and other communications etc. Cases can be escalated and emails can automatically be sent to a new case owner. Every change to a case is logged so you can always go back in time to see who did what and when.

CDD – Customer Due Diligence, according to the 4th EU AML Directive as a business proprietor you are required to review and verify the identity of your customers through enhanced CDD for situations associated with higher risk. You are also obliged to monitor the financial transactions of your customers and report suspicious transactions to the authorities. The 4th AML Directive favours a more risk-based approach, with enhanced efforts targeted at higher risk sectors, with regard to CDD.

Close Associate – Refers to individuals who are closely connected to a PEP either professionally or socially. The definition of a close associate provided by Swedish Bankers’ Association which is also applied by Trapets is a person who, jointly with a PEP, owns or otherwise exercises controlling influence over a company, a person who otherwise has, or has had, a close relationship with a PEP, which need not be a commercial relationship, a person who alone owns or exercises influence over a company which, in reality been formed for the benefit of a PEP.

Cross-market manipulation – Behavior that implies that placing orders or trades in a specific instrument on one venue with the intent to achieve a corresponding change in the pricing of the same instrument on another venue. Today, with a fragmented market trading environment the pricing is more or less identical on the different venues. If the prices varied there would be   opportunities for arbitrage which high frequency traders would utilize to maximize profit and thereby eliminate the difference in price. Indications of cross market manipulation could be trades that seemingly only seek to raise, or lower, the price or the placing of orders with the purpose of changing the asking/bid spread on one venue for the case that the price on the related venue is calculated based on the ‘original’ bid/ask spread.

Cross-product manipulation – In essence cross product manipulation is much like cross market manipulation but instead of abusing the foreseeable connection in the price of the price of an instrument on multiple venues one abuses the foreseeable connection between the price on the underlying asset and the price of its related derivatives.

ESMA – The European Securities and Markets Authority

Fourth directive against money laundering and terrorism financing – See Fourth Money Laundering Directive

Fourth Money Laundering Directive – The key changes in the Fourth Money laundering Directive compared to the third are an increased emphasis on ultimate beneficial ownership and customer due diligence, an expanded definition of a politically exposed person, a lowered cash payments threshold and an increased focus on risk based approach and a requirement for evidence- based measures. Trapets has produced a White Paper on the new regulation. Read more and download the paper.

Insider trading – Trading which is built upon knowledge or information which is not publicly known. It could be upcoming business deals. Etc. Trading in a public company’s stock or securities by individuals who have access to nonpublic information about the company. The reason insider trading is illegal is because it can be seen as unfair to other investors as they generally do not have access to the same information as the ‘insider’. Therefore, the ‘insider’ could make far larger profits than the other investors. In extension, insider trading creates insecurity and may harm the trust for the market.

InstantWatch AML – InstantWatch AML is a flexible transaction monitoring solution for a company’s customers and accounts that meets today’s complex regulatory challenges. Designed specifically for a financial organization’s compliance team, the system automatically identifies suspicious activities, transactions, and transaction patterns powered by a state of the art analysis engine. InstantWatch offers an automatic and holistic risk based approach were risks are calculated using a weighted risk model that is extremely configurable in order to support any kind of
businesses. The risk calculation can consider every aspect of a customer such as input from the customer due diligence process, all customer details, screening status, etc. InstantWatch also calculates risks on accounts and transactions using the same model. In addition to supporting risk calculations, InstantWatch also uses the calculated risks in the monitoring to enable automatic differentiation of how to monitor clients and accounts with different risks. InstantWatch AML together with InstantWatch KYC provides the complete compliance system for Anti Money Laundering and Counter Terrorism surveillance.

InstantWatch KYCInstantWatch KYC is a quick and accessible internet service for screening of customers against Sanctions, Ofac and PEP lists. The service can be used either by performing single or batch screenings, either via a webservice API or by uploading a file containing customer details.

InstantWatch Market – InstantWatch Market is a powerful platform for automatic surveillance and compliance. It is already leading the market in northern Europe. InstantWatch Market analyses a flow of financial transactions such as trades, orders and news from various sources in real time, and then issues alerts according to a configurable rule system. The system’s automatic monitoring module performs advanced pattern analysis of each transaction. InstantWatch Market contains all alert types needed by exchanges and brokerage firms, according to the specified scenarios in Mifid, MAD and ESMA guidelines – as well as other laws/regulations. The user can configure alert triggers and set the thresholds in real time.

Know your customer – An important part of the EU’s third and fourth directive against money laundering and terrorism financing. Banks, financial companies and institutions must screen their clients against EU sanctions lists and keep track if a client is a Politically Exposed Person, PEP, or can be categorized as Relatives and Close Associates, RCA. If a potential customer is found to be a PEP/RCA an enhanced Know Your Customer process should be applied. The process could refer to asking more questions to the client or escalate the onboarding decision to a senior management.

KYC – Acronym for Know Your Customer. KYC is an important part of the fourth directive and entails that the firm or bank should have detailed information of each respective client in their client base. Know Your Customer consists of several segments, where screening the potential customer against PEP – and Sanctions list constitutes one part. Trapets provides a service where screening against PEP- and Sanction lists can be automated through API, namely InstantWatch KYC

MAD – Acronym for Market Abuse Directory

MAR – Acronym for Market Abuse Regulation

Market abuse Regulation – The purpose of the Market Abuse regulation is to ensure the integrity of the financial markets and to enhance investors protection on, and the trust of the markets. The regulation stipulates that firms are obliged to have arrangements, systems and procedures in place to detect suspicious market abuse and insider trading. The regulation has been extended to include orders and attempted insider dealing or market manipulation which must be reported to the authorities. Trapets has written a White Paper on MAR, read more about it and download the White Paper

MIFID 2 – In the beginning of next year, the updated MiFID2 and MiFIR will be implemented across Europe. With these new legislations comes a plethora of new and extended obligations for the participants of the financial markets. Trapets provides functionality to Investment firms, Venues and Competent authorities to ensure compliance within the following areas: Best Execution functionality for investment firms and venues, Monitoring of algorithmic trading and market making, with real-time alerting functionality, Order record keeping and Trade reconstruction including the handling of RFQs, Short code/Long code regime and integration to voice recording/chats. Read more about the upcoming regulations in Trapets’ White Paper

Outsourced Trading Surveillance – A fully outsourced service where a team of experts within Trapets perform the operational surveillance tasks on behalf of the client including detection, investigation, documentation and the creation of Suspicious Transaction and Order Reports. The service also includes the surveillance system InstantWatch Market along with its installation, implementation and setup. Find out more about Outsourced Trading Surveillance

PEP – Acronym for Politically Exposed Person. Find out more about Trapets’ PEP Lists

Politically Exposed Person – Because of the position of a PEP, and its’ potential influence, they are generally considered to present a higher risk for involvement in bribery, corruption and terrorist financing. As such they should be considered as a high-risk client category in systems such as InstantWatch AML, and monitored thereafter. Foreign PEPs should, according to FATF’s recommendations always be considered as elevated risk and undergo enhanced due diligence measures. The decision to maintain a business relation with a foreign PEP should always be escalated and taken by senior management. It should also lead to proactive steps being taken in relation to the monitoring of the business relationship to determine whether transactions or activities being made appear suspicious or unusual. When considering whether to establish or maintain a business relationship with a PEP the focus should be on the level of risk, for that PEP, which it would involve for the business proprietor.

Painting the tape – Trades with the purpose of giving the impression to other participants that the price is starting to move or the turnover is raising to lure them to act can be indicators of manipulative behavior called painting the tape.

Pre-arranged trading – An indication that a buyer and a seller have made up the terms of the trade in advance is that timing, price and volume of the matching orders are suspiciously similar.

Pump and dump – Pump and dump means that someone takes a long position and after that begins to raise the price with small purchases, or by spreading positive rumors, with the purpose of attracting other participants into buying which gives an opportunity to unwind the position at an artificially high level.

Quote stuffing – To enter, update or cancel a large amount of orders to camouflage one’s own trading strategy or to create uncertainty for other participants or slow down their trading system with these massive amounts of useless data.

Reports – The report repository in InstantWatch AML has a series of different reports to choose from. All of them can be filtered to show what you want and exported to all MS Office formats, pdf, csv etc. Don’t worry if the repository is missing a special report you need, InstantWatch is integrated with MS Report Builder so it offers excellent possibilities to add new reports to the repository by yourself, of course Trapets can assist to produce new reports.
An example of report is the prefilled regulator reports that can be generated by a single click, minimizing the administration effort. InstantWatch AML is also integrated with the UNODC – goAML, enabling you to report suspicious activities electronically to relevant authorities.

Risk based approach –  A risk based approach entails firms and banks should put their effort regarding surveillance against terrorist financing and money laundering where they find the risk of such activity the highest. As such, properties on customers, account and transactions can be weighed to achieve an overview of the risk related to certain customer, account or transaction groups and these can be closer monitored in a system such as InstantWatch AML. In the fourth EU AML Directive business proprietors are obliged to make their own risk assessment for their line of business.

Smoking – A fast participant, often a high frequency trader, places an order with certain conditions with the purpose of getting other, slower, participants to place matching orders. The conditions of the initial order are then changed rapidly onto less generous terms resulting in the slow participants executing a trade on worse conditions than that of the initial order.  

Spoofing –  A participant places a large bid or ask orders a bit away from the touch to encourage other participants to place orders and narrowing the spread, which gives the initial participant the opportunity to trade in the opposite direction at better prices than would otherwise have been the case.

STOR – Acronym for Suspicious Transaction and Order Report.

STR – Acronym for Suspicions Transactions Report

Suspicious Transaction and Order Report – If there is reasonable suspicion that an order or trade could constitute insider dealing or market manipulation it should be reported to the authorities in a so called STOR. A STOR shall be submitted in writing without delay as soon as a reasonable suspicion has arisen. ESMA mentions a deadline of two weeks. However, there might be cases where the suspicion arises later than that and in such cases the firm shall be able to provide an explanation and justification to why the STOR was delayed.

Suspicious Transaction Report – If an administrator notices a suspicious transaction which may indicate money laundering or terrorism financing is taking place this shall be reported to the authorities it may concern.

Smurfing – Smurfing is a scenario where many small deposits are being made, followed by a large withdrawal in a predefined period of time. In InstantWatch AML there is an alert which can be configured to detect smurfing based on criteria such as transaction amount, number of deposits and time frame during which the transactions have been taking place. Smurfing could be an attempt to launder money or finance a terrorist journey.

Transaction monitoring – The scenarios that are covered in InstantWatch AML can be configured to support all kinds of monitoring that are required from regulators, laws, directives etc. If a business requires a new special scenario it can easily be developed, either by Trapets or another party since the programming interface is open. There are alert triggers that cover amounts, number of transactions, specific patterns, the consideration of clients historical patterns, calculating individual thresholds per customer or account, considering the risk of a customer/account etc. All alert triggers define a scope of what to monitor, example of scopes could be which customers, accounts or transaction types should be monitored. This together enables you to configure your monitoring to reduce the number of false positives to a minimum. Administration of the alert triggers is done by the user by themselves in a straightforward and intuitive way. The scopes and thresholds can be changed in a couple of seconds. The monitoring can be done in real-time or at scheduled times, or a combination of both if there is a need for real-time monitoring for some feeds of data and not possible for others.

Trapets – Trapets AB specialises in transaction surveillance and compliance technology solutions and today ranks as one of Europe’s most experienced independent providers with expertise ranging from systems design, implementation and support through to expert consulting and training. Trapets solutions are based on the third generation surveillance and compliance platform InstantWatch. With an ever increasing degree of regulation in financial markets comes the need for expert advice and competence to design and build systems that meet compliance objectives and budgets. Trapets delivers this advice and design on-premise or as Trapets hosted services. Financial organisations and Regulatory Authorities throughout the world use InstantWatch Market for market surveillance and compliance, IW AML for Anti Money Laundering and terrorist finance surveillance and IW KYC for Know Your Customer screening.

Trash and cash – Mirrored version of Pump and Dump i.e someone takes a short position and after that begins to lower the price with small sells, or by spreading negative rumors, with the purpose of stressing to other participants into selling which gives an opportunity to unwind the position at an artificially low level.