Financial institutions fighting money laundering have long relied on programs that verify who their customers are. Those looking to go a step further can strengthen their compliance efforts with KYT — a practice that digs into the actual transaction data flowing through customer accounts to spot anything suspicious. Failure to detect and identify and report suspicious transactions carries expensive fines for organizations that fail to report to the government. Although building out a KYT system requires meaningful upfront investment, the cost of getting caught off guard by a criminal operation — through regulatory fines and reputational damage — is far greater.

What KYT Is and Why It Matters

KYT is essentially a specialized branch of anti-money laundering (AML) monitoring. Know your Transaction is a subset of AML Transaction Monitoring and uses sophisticated rulesets to monitor customers’ transactions for suspicious behaviour that could indicate criminal activity or intent. It uses rule-based systems to flag unusual patterns in customer transactions that might signal illegal behavior.

While Know Your Customer (KYC) processes focus on who someone is, KYT focuses on what they're actually doing with their money. KYC processes help institutions assess potential risk through identity verification. However, a report from SMILE ID highlighted that most fraud is now being carried out after the KYC process has been done. This is where KYT comes in whereby, even after going through the KYC process, we are still monitoring the transaction and the data associated with the transaction. When KYC and KYT are combined, these strategies present a clearer picture of a client's expected vs actual risk. Used together, these two approaches give institutions a much clearer picture of whether a customer's real behavior matches their expected risk profile.

How It Works

KYT runs continuously and can be broken into three phases.

Data analysis: First, transaction data is analyzed — this can cover location, the parties involved, and spending patterns, or it can be customized with specific keywords, thresholds, and frequency rules.
Risk assessment: AI and machine learning make this process increasingly adaptive. Second, anything flagged gets a closer look: investigators examine where the money came from, why it moved, and whether it crosses legal lines — for example, checking whether a customer is deliberately keeping transactions just under reporting thresholds, a tactic called structuring or smurfing.
Reporting: Third, if illegal activity is confirmed, the institution files a Suspicious Activity Report (SAR) with the relevant regulator. Transaction monitoring works hand in hand with STR and SAR. A robust system not only detects any suspicious transactions, but also provides the ability to submit a report on the same to the related jurisdictional authority.

The Benefits

Beyond regulatory compliance, KYT delivers several advantages. It sharpens risk management by providing granular insight into customer behavior. It boosts efficiency because the heavy lifting can be automated, dramatically speeding up analysis. It enhances the ability to catch a wide range of financial crimes, including fraud and terrorism financing. And it deepens customer due diligence by adding transaction history as an extra layer of context to customer risk profiles.

Who Benefits from Transaction Monitoring?

The types of organizations that can benefit include banks, credit unions, insurance companies, fintechs, crypto exchanges, casinos, and more. Financial organizations which can benefit from Transaction monitoring include:

Remittance companies
Banks
Cryptocurrency exchanges
Online gaming and betting companies
Credit card companies
Investment companies

What to Keep in Mind When Implementing KYT

Rolling out KYT adds complexity, so a few things deserve careful thought. On the cost side, automation is essentially a necessity given the volume of data involved — but the initial spend can pay off over time by reducing manual workload and redeploying staff toward higher-value tasks. Data quality is critical; institutions need to ensure their KYT systems connect cleanly with existing data infrastructure and that legacy systems are properly prepared. Finally, a well-calibrated KYT system will generate a lot of false positives — that's actually a sign it's working — but managing them efficiently requires adequate staffing and streamlined escalation processes.

The Bottom Line

The best KYT solutions monitor not just financial transactions but all high-risk user actions on a platform, such as changes to contact details or linked accounts. Companies should assess their own specific needs rather than chasing industry trends when choosing a system.