’A Historic Day’: Bunq Claims Victory Over Dutch Central Bank In AML Case

October 20, 2022
Dutch fintech bunq is celebrating after the Dutch Trade and Industry Appeals Tribunal ruled in its favour over the use of artificial intelligence for anti-money laundering (AML) compliance.

Dutch fintech bunq is celebrating after the Dutch Trade and Industry Appeals Tribunal (CBb) ruled in its favour over the use of artificial intelligence (AI) for anti-money laundering (AML) compliance.

The firm, which achieved unicorn status in 2021, took De Nederlandsche Bank (DNB) to court earlier this year to challenge what it has said is the regulator’s “antiquated and ineffective” AML strategy.

The CBb has now sided with bunq and said that the DNB has not proved that this method of screening is contrary to the law.

“The law has open standards and does not prescribe exactly how banks must screen their customers,” the CBb says, ruling that bunq has explained in detail in the procedure that and how its method, based on AI, works and why it minimises the risks of money laundering.

As a result, the DNB has also not proven that bunq falls short in monitoring private customers on the basis of the standard user profile.

“For the longest time, the Dutch National Bank (DNB) rejected our methods, instead forcing us to adhere to their antiquated approach, to 'do as they say',” bunq said in a statement on its website.

“Fraud detection at traditional banks kept relying on questionnaires that boiled down to asking people ‘Are you a fraudster?’”

Although bunq said that it would have been easier to follow the DNB’s rule-based approach, “putting the safety of you, your money and that of the entire banking system, at increased risk”, it was, however, “keenly aware” of the long-term consequences the DNB’s methods would have.

The court ruling also said that the DNB has not proven that bunq, founded in 2012, has obtained insufficient information from business customers who already had an account when opening up a bank account.

According to the CBb, the DNB has not made clear why bunq has to ask these customers additional questions about the purpose and use of their account, which means that the DNB has also failed to prove the violation with regard to transaction monitoring for these customers.

"It was a historic day in the Netherlands for banks. KYC implementation costs a lot of time, energy, and money,” said Meverly Adjhei Benjamin, a Netherlands-based financial crime consultant, commenting on the outcome.

“Bunq winning the case and introducing AI is a milestone, and something to be prized."

A brave move

Bunq founder and chief executive Ali Niknam went as far to say that this was a “true David vs. Goliath case”, with the challenger bank’s legal team “facing an endless supply of DNB lawyers opposing them”.

“Regulatory approval, and being in a space where regulators aren’t going to fine you or think badly of you, is a big concern for financial institutions,” noted Philip Nordenfelt, a fellow Netherlands-based fintech consultant.

The DNB is quite conservative, and a very well respected institution internationally, he pointed out. “For them to allow this to happen shows that bunq has clearly found a crack, and shows there are better ways to manage compliance.”

The reason that the DNB took action here is because it has not seen another way to be effective, said Adjhei Benjamin. “Bunq being the first trying to teach otherwise is against their protocols.”

“The central bank has a traditional way of thinking, and doesn't want to think outside of the box,” she continued. “However, if they are effectively combating money laundering, then you wouldn't have so many people working in this industry."

The story of fintechs struggling to see eye to eye with their regulators is nothing new.

For example, Klarna boss Sebastian Siemiatkowski blasted EU regulations at a conference earlier this year.

“KYC and AML is the worst regulation ever created,” he said. “It is so prescriptive, it is poor, it doesn’t serve its purpose, and a lot of the regulation that has come out of Brussels has been like that.”

Yet, rather than complaining and/or lobbying for change, bunq has taken a much more unique approach by pursuing the DNB with legal action.

“I’m amazed that bunq dared to do this, but it shows they are fearless,” said Nordenfelt, noting that bunq is part of a newer generation of banks.

“This sets a precedent in the EU, but also globally.”

The decision by the CBb could have repercussions for the industry and compliance requirements in the Netherlands and beyond.

“This decision, surprising as it may be to many, is quite possibly a seminal event in the adoption of regulatory technology solutions across the financial services ecosystem,” said Andrew Quinn, director of Dublin-based PAT Fintech.

For Quinn, the court’s endorsement of using advanced technologies such as AI and predictive analytics to enhance fraud detection and implement more effective AML is a significant step towards a more risk-based approach to compliance across the industry.

“This decision should enable solutions providers to break down barriers to adoption and also challenge regulators in a very positive manner. To more proactively engage with the potential of technological solutions to an ever evolving and complex regulatory environment,” said Quinn.

Partially right

Although this part of the decision ruled in bunq’s favour, otherwise the court did conclude that both the bank and DNB are each partially right.

For example, the CBb’s judgment also ruled that DNB has proven that bunq has violated other AML rules. “This includes the obligation to investigate the source of a customer's financial resources. bunq has also violated the rules that, due to the risk of corruption, prescribe that a bank must conduct stricter investigations into customers with an important public function.”

Commenting on the ruling, the DNB stated that: “We note that the commission concludes that DNB has proven on a number of points that bunq has violated anti-money laundering rules.

“The commission points out the obligation to investigate the source of a customer's financial resources, the obligation to identify the ultimate beneficial owner and violation of the rules regarding enhanced investigation of politically exposed persons,” the statement continues.

As for the other part of the ruling, the DNB has said that it will study it further and investigate what this means for supervision.

“We will also include the ruling in the dialogue that DNB conducts with the financial sector about the risk-oriented interpretation of the legal requirements and the use of technology to combat money laundering.”

Striking a conciliatory tone, Nordenfelt said that the DNB is doing the best that it can. “Sometimes, a ruling like this is necessary to move innovation forward.”

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