The Future of Suspicious Transaction Reporting: FATF President Suggests a Two-Tier System

Could a new approach to suspicious transaction reporting improve financial intelligence and reduce unnecessary compliance activity?

10/19/20268 min read

Is the Current STR System Still Effective?

For decades, Suspicious Transaction Reports (STRs) have been one of the foundations of the global anti-money laundering framework. Banks and other reporting entities monitor transactions, investigate unusual activity and submit reports to Financial Intelligence Units (FIUs) when the applicable suspicion threshold is met.

The system was designed to provide law enforcement with information that might otherwise remain hidden within financial institutions.

But the volume of reporting has increased considerably. FIUs receive large numbers of STRs, while financial institutions invest substantial resources in transaction monitoring, investigations and regulatory reporting.

This raises an important question: Does the growing number of STRs actually mean that more financial crime is being detected and prevented?

FATF President Giles Thomson has now suggested that it may be time to reconsider how suspicious transaction reporting works.

Speaking at the International Anti-Financial Crime Summit in London on 7 October 2026, Thomson raised the possibility of introducing a two-tier STR system. His comments, reported by AML Intelligence on 17 October, reflect a broader discussion about the quality of financial intelligence, the burden of defensive reporting and the need to identify serious financial crime more quickly.

Although no formal changes to FATF standards have been announced, the proposal deserves attention from regulators, financial institutions and compliance professionals.

Why Is FATF Considering a Different Approach?

When the original FATF reporting standards were developed, financial institutions and FIUs operated in a very different environment.

Transaction volumes were smaller. Payment systems were slower. Financial intelligence was largely generated through conventional banking relationships and investigations.

Today, financial transactions move across borders almost instantly. Criminal networks exploit digital payments, virtual assets, complex corporate structures and multiple financial intermediaries.

At the same time, financial institutions have developed increasingly sophisticated monitoring systems capable of generating enormous numbers of alerts.

The difficulty is distinguishing genuinely suspicious activity from unusual but legitimate transactions.

This challenge becomes even greater when reporting entities submit STRs primarily to demonstrate regulatory compliance or avoid criticism for failing to report.

This practice, commonly described as defensive reporting, can increase the volume of financial intelligence without necessarily improving its investigative value.

France provides an example of the scale involved. According to figures cited during the discussion, French authorities received nearly 197,000 STRs from the financial sector in 2024.

The problem is not necessarily that these reports were unjustified. Rather, the volume raises questions about how effectively FIUs can identify, prioritize and act upon the most significant information.

What Is the Proposed Two-Tier STR System?

Thomson suggested exploring a reporting framework that distinguishes lower-level suspicious activity information from higher-value financial intelligence.

Under such an approach, reporting entities might continue providing broader suspicious activity information through one reporting channel, while more significant intelligence would receive greater attention through another.

Higher-value intelligence could arise from complex investigations, coordinated analysis or information-sharing arrangements involving several financial institutions and public authorities.

For example, a bank might identify unusual activity involving a customer whose transactions are inconsistent with their expected business profile.

That information could be useful to an FIU, even when the bank cannot identify a wider criminal network.

In another situation, several financial institutions might identify related transactions involving suspected human trafficking, organized fraud or professional money laundering.

When combined, their information could reveal a coordinated criminal operation that no individual institution could identify independently.

A differentiated reporting framework might allow authorities to prioritize the second situation while preserving the intelligence value of the first.

However, the precise design remains an open question. FATF has not established formal definitions, reporting thresholds or procedures for a two-tier STR regime.

Could Three Tiers Be More Effective?

The discussion has already prompted alternative suggestions.

Pat Lordan, former head of Ireland's Financial Intelligence Unit, suggested that a three-tier approach might provide greater flexibility.

Under his proposed model, the most urgent cases would receive immediate attention. These could involve ongoing fraud where rapid intervention might prevent victims from losing their money.

A second category would cover serious financial crime cases requiring investigation but not necessarily immediate intervention.

A third category would contain lower-urgency intelligence that remains relevant but can be assessed through ordinary investigative processes.

This distinction could help authorities allocate resources more effectively.

However, it also introduces an important risk.

Criminal activity that initially appears minor may form part of a much larger operation. A series of relatively small transactions could reveal a professional money laundering network when examined alongside information from other institutions.

Any tiered reporting system would therefore need mechanisms for reassessing and escalating intelligence as new information becomes available.

The Problem of Defensive Reporting

Defensive reporting is one of the most difficult issues in modern AML compliance.

Financial institutions are required to identify and report suspicious transactions. Failure to report can result in regulatory penalties, enforcement action and reputational damage.

As a result, institutions may develop a conservative reporting culture in which uncertainty frequently leads to an STR.

This does not necessarily mean that reports are inappropriate. However, it can create incentives to prioritize regulatory protection over intelligence quality.

A high number of STRs may be interpreted as evidence of an active compliance programme.

Yet reporting volume alone says little about whether an institution is identifying the most significant financial crime threats.

An institution submitting thousands of poorly developed reports may contribute less useful intelligence than one submitting fewer reports supported by strong analysis and meaningful connections between customers, transactions and suspected criminal activity.

The objective should not be to reduce STR numbers arbitrarily.

It should be to ensure that reporting provides authorities with information they can use.

Financial Intelligence Requires More Than Individual Reports

One of the most important aspects of Thomson's remarks concerns the changing nature of financial intelligence.

Traditional STR systems largely depend on individual reporting entities identifying suspicious activity and forwarding information to their national FIUs.

But sophisticated criminal networks rarely operate through a single institution.

Professional money launderers may move funds through multiple banks, payment service providers, money services businesses and virtual asset platforms.

Each institution sees only part of the activity.

A transaction that appears relatively ordinary at one institution may become highly suspicious when connected to transactions observed elsewhere.

This is why information sharing and public-private partnerships are becoming increasingly important.

Thomson referred to work in the United Kingdom involving data fusion, where information from different private-sector sources can be combined and analysed.

Such arrangements could help identify suspicious networks earlier and support more effective intervention.

However, successful information sharing requires clear legal authority, privacy protections, strong data governance and appropriate controls over access and use.

What Would Change for Financial Institutions?

A two-tier STR framework could significantly affect AML operations if it eventually becomes part of national reporting requirements.

Financial institutions might need to distinguish between different levels of intelligence value and investigative urgency.

This could require changes to transaction monitoring systems, case management processes, escalation procedures and reporting governance.

Compliance teams would need clear criteria for identifying cases requiring urgent attention.

For example, an ongoing fraud involving rapid movement of victim funds might require immediate escalation, while a complex historical laundering investigation might warrant a different reporting priority.

Institutions would also need to determine when information should be shared with other financial institutions, subject to applicable legal restrictions.

Training would become particularly important.

Investigators would need to understand not only whether the legal reporting threshold has been met, but also how to assess the significance, urgency and broader intelligence value of suspicious activity.

Importantly, any future tiered system would need to preserve the legal obligation to report suspicious transactions.

A lower reporting category must not become a justification for withholding information that meets the applicable reporting threshold.

What Are the Potential Benefits?

A properly designed system could offer several advantages.

More effective FIU prioritization. Authorities could direct urgent investigative resources toward serious threats while continuing to retain and analyse other suspicious activity information.

Better intelligence quality. Institutions might place greater emphasis on investigative analysis and meaningful reporting narratives.

Earlier intervention. Urgent fraud, terrorist financing or other serious cases could receive attention before funds disappear or further harm occurs.

Stronger public-private cooperation. Information from several institutions could help identify criminal networks that remain invisible when transactions are examined separately.

More meaningful compliance performance measures. Institutions could increasingly evaluate how their intelligence contributes to investigations rather than relying primarily on reporting volumes.

These benefits remain potential outcomes rather than demonstrated results of a system that has not yet been designed or implemented.

What Are the Risks?

The proposal also raises difficult questions.

Who would decide whether an STR belongs in a higher or lower tier?

Would the reporting institution make that determination, or would the FIU classify reports after receiving them?

Could institutions face regulatory consequences for assigning a serious case to a lower category?

How would the system prevent inconsistent classifications between institutions?

Would different reporting deadlines apply?

And how would authorities ensure that lower-priority reports are still analysed and connected to emerging criminal networks?

There is also the risk of creating additional compliance complexity.

If institutions must complete the existing STR assessment and then undertake a separate classification exercise, the new framework could increase workloads rather than reduce them.

The success of any reform would depend on clear standards, proportionate requirements and effective technology.

Should Compliance Performance Be Measured Differently?

The discussion raises a broader issue that deserves attention from financial institutions and regulators.

AML programmes are frequently assessed through operational indicators such as alert volumes, investigation turnaround times, STR submission numbers and completion of regulatory reviews.

These measures are useful for understanding workloads and control performance.

However, they do not necessarily demonstrate how effectively an institution identifies and disrupts financial crime.

A stronger performance framework could examine the quality of investigations, the identification of previously unknown criminal networks, the usefulness of intelligence shared with authorities and the ability to recognize emerging financial crime typologies.

Some outcomes, such as prosecutions and confiscations, are outside the direct control of reporting entities. They should therefore be interpreted carefully rather than used as simplistic measures of institutional compliance performance.

The objective is to assess whether AML resources are directed toward meaningful risk reduction.

Is FATF Moving Toward a New Reporting Standard?

Not yet.

Thomson's comments represent an invitation to reconsider the future of financial intelligence rather than an adopted FATF policy.

FATF Recommendation 20 continues to require prompt reporting when a financial institution suspects, or has reasonable grounds to suspect, that funds are proceeds of criminal activity or related to terrorist financing.

Any formal change would require further policy development and agreement through FATF's standard-setting processes.

Nevertheless, the proposal is consistent with broader priorities under the FATF's 2026–2028 UK Presidency, including improving the risk-based approach, strengthening information sharing and responding more effectively to fraud.

The direction of the discussion is significant even if the eventual outcome remains uncertain.

Conclusion: More Reports or Better Intelligence?

The FATF President's proposal challenges a long-standing assumption within AML compliance: that collecting increasing amounts of suspicious transaction information necessarily strengthens the fight against financial crime.

Reporting remains essential. Without STRs, authorities would lose access to information that financial institutions are uniquely positioned to identify.

But reporting is only the beginning of the intelligence process.

The real value comes from analysing information, identifying connections, prioritizing serious threats and supporting effective investigations.

A two-tier STR system could provide one possible way to improve that process. A three-tier approach, stronger information-sharing arrangements or better FIU analytics might offer other solutions.

The central question is not how many reports financial institutions submit.

It is how effectively the information helps identify, prevent and disrupt financial crime.

For AML professionals, this discussion is worth following closely. It may influence how suspicious transaction reporting, financial intelligence and compliance effectiveness are understood in the years ahead.

Sources and Further Reading

AMLTraining.org provides independent analysis of international AML/CFT developments. The proposed two-tier reporting framework discussed in this article has not been adopted as a FATF standard.

Contact us

amltraining@zoho.com

© 2026. All rights reserved.