Red Flags
Overview
Red flags are indicators that suggest potential suspicious activity requiring further investigation. They serve as early warning signs in AML, fraud prevention, and compliance frameworks. Examples include unusual transaction patterns, structuring, inconsistent documentation, and links to high-risk jurisdictions. Regulators expect financial institutions to train staff to recognize red flags and integrate them into transaction monitoring systems. Red flags are not definitive proof of wrongdoing but act as triggers for enhanced due diligence, escalation, and possibly filing a suspicious activity report (SAR). Banks, fintechs, and insurers maintain updated red flag typologies aligned with FATF recommendations, local regulator guidance, and industry risk intelligence.
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Related Terms
FAQ
What is a red flag in compliance?
An unusual activity or pattern that may indicate fraud or money laundering.
Why do regulators stress them?
They ensure institutions detect risks early and escalate appropriately.
How are they used in practice?
As triggers for case reviews, EDD, or SAR filings.
How do they evolve?
Institutions update red flags with new typologies, threats, and regulatory input.