What model test verifies that alerts indicative of potentially suspicious activity are not missed due to threshold settings?

What model test verifies that alerts indicative of potentially suspicious activity are not missed due to threshold settings?
A . Black-box configuration
B . Above-the-line
C . Gap analysis
D . Below-the-line

Answer: D

Explanation:

Understanding Below-the-Line Testing:

Below-the-line testing evaluates scenarios where alerts were not generated but could have been if

the thresholds were set differently.

This testing method focuses on identifying potential gaps in the detection model that might lead to

missed alerts for suspicious activities.

Significance in AML/CFT Compliance:

This type of test ensures the system’s thresholds are not too restrictive, which could result in legitimate suspicious activities being overlooked.

It provides insight into whether the system needs re-calibration to balance false positives and missed detections.

Process of Below-the-Line Testing:

Data Sampling: Analyze transactions that fall just below the alert generation threshold.

Scenario Analysis: Identify whether these transactions exhibit patterns consistent with suspicious activities.

Model Adjustment: Adjust thresholds to optimize the trade-off between sensitivity and specificity.

Advanced CAMS-Audit

Reference: CAMS-Audit guidelines detail below-the-line testing as an integral part of tuning and validating monitoring models. It ensures that monitoring systems align with risk appetite and operational realities.

FATF guidance on dynamic model validation highlights the importance of continuous review and adaptation of thresholds to evolving typologies and risks.

Case Example and Regulatory Perspective:

Advanced CAMS-Audit recommends below-the-line tests especially in high-risk sectors, ensuring robust detection mechanisms.

Regulatory expectations, as per FATF and Basel guidelines, require proactive measures to address model gaps that below-the-line testing can identify.