1. Transaction Due Diligence and Monitoring
Paper presented at the Committee of Chief Compliance Officers of Banks in Nigeria
Lagos, 13th June, 2014

2. What is considered a transaction?
In General terms: this is considered as an agreement, contract, exchange, understanding, or transfer of cash or property that occurs between two or more parties and establishes a legal obligation (also referred to as booking or reservation)
In Accounting terms: it is referred to as an event that effects a change in the asset, liability or net worth account. Transactions are recorded first in journal and then posted to a ledger.
However, in Banking terms this is referred to as an Activity affecting a bank account and performed by the account holder or at his or her request.

3. What is considered Due Diligence?
In general terms this can mean; a measure of prudence, responsibility and diligence and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the prevailing circumstances.
In business this is described as the duty of a firm's Directors and Officers to act prudently in evaluating the associated risks in all transactions.

4. Building blocks of TDD
All sectors of the economy/business are risk score
All accounts are risk scored
All product lines are risk scored
All medium of transactions are risk scored
All branch geographies are risk scored
All geographies are risk scored
Risk score government ministries/departments and Parastatals

5. What do we mean by risk assessment?
Likelihood Likelihood refers to the probability of an adverse event occurring Consequences Consequences refers to the severity of the effects of the adverse event

6. Risk assessment Likelihood x Consequence = Risk
Likelihood Risk Matrix Consequences
Likelihood x Consequence = Risk

7. Conducting Transaction Due Diligence
Parts of a transactions:
The origin- Who, What? How?
The destination-Who? What? How?
Anything in between-How? What medium? What is the Mode?
Subjecting the three parts to due diligence is the key to transaction due diligence

8. Conducting TDD The Origin of the transaction
The individual account
Type of account? Go with the initial risk assessment of the account. (is it going against the established trend?)
What is the risk level assigned to the account
{Combine the risk level of account (A) +what is being transacted (B) + how it is being transacted(C)}/3 = (R1)risk level of origin
The destination of the transaction
The destination account, country, business
This can be tricky as we may not have the complete picture, but consider if destination is within or you have evaluated the destination before,
{Destination account (A)+Area or Country risk level (B) + nature of business}/3 = Risk level (R2)

9. Conducting TDD Anything in between (R3)- Medium of Transaction How (A)
Structured deposits- Rapid or slow
Structured withdrawals below thresholds or not
Withdrawals with no economic sense
Medium (B)
- wire transfer, cash deposit, other electronic means NIBSS, RTGS, NEFT, others-what is the inherent risks associated with these mediums
Mode (C)
-Cheque/Cash lodgement, instructions (verbal /written), Electronic platform (phone, internet or )? Any other mode of payment or withdrawal
R3=(A+B+C)/3

10. Transaction Risk
RT=R1+R2+R3,
Thus: RT per transaction

11. 5 X 5 Risk Matrix Likelihood Consequence Consequence 10 8 6 4 2
Almost certain 5 10
High risk
Likely 4 8
Moderate 3
Major 4
Extreme 5
Likelihood
Moderate 3 6
Consequence
Unlikely 2 4
Rare 1 2
Low risk
Negligible 1
Minor 2
Moderate 3
Major 4
Extreme 5
Consequence

12. Outcomes of your risk assessment
You are at liberty to decided what unit of measurement to take in measuring your risk level.
Example on a 5x5 level of matrix:
Minor - Financial loss or image damage to just the individual (staff) image
Moderate-Financial Loss or image damage to Branch
Major- Loss or Image issues to Institution
Extreme – Financial Loss or image issues to Financial System

13. Monitoring Which of the several transactions do you monitor?
Rate your risk against your appetite
Rate it against your mitigant
Reduce your exposure to the barest minimum
Undertake periodic reviews of account transactions.
This can be done against the risk rating, low risk review every 90days, medium risk review in 30days, High risk every 10 days.

14. Conclusion Develop an FIU or a dedicated team for this
Create scenarios from your wildest imagination but possible to occur
Work with the IT department to create an in-house application or to add your rules on the existing application
I wish you Good Luck !!!
Thank you for listening……

15. Abdul Rahman, M. Mustapha +2348034514052 amustapha09@gmail.com
Thank you!!!!
Abdul Rahman, M. Mustapha