New teacher or just a reference?

In October, the Central Board of Professions and Businesses (CBB) decided that online bank Bunq was within its right to screen customers with artificial intelligence and data analysis. The ruling is presented by the FD and Banken.nl as a huge victory for Bunq, while other media confirm that part of the instructions will be preserved.

What does the Bonck case actually mean for practice within the financial sector and is it really a new landmark or is it more subtle?

Arjan Boom is a consultant at Enigma Consulting and specializes in financial crime cases. Explains the case and gives a hint of what the outcome could mean for the market.

background

Bunq is a fully online bank that processes all payment transactions via the app. It assigns a customer a “regular profile” upon acceptance, based on analysis of customer data and artificial intelligence (AI). Almost all Bunq customers fall into this profile.

It should be noted that we are talking here about Punk payment services and not investment or mortgage services. The ruling also provides a little insight into the role of AI in personalizing this profile. This is not strange in itself, as this relates to competition-sensitive information that is rarely mentioned in a public version of the judgment.

According to the DNB, assigning a regular user profile to each new customer is not the same as conducting a customer survey on the purpose and intended nature of the business relationship. In 2019, DNB issued instructions telling Bunq to follow a certain course of action. The instructions specifically relate to three components:

  • Bongo has not complied with the obligation to specify the purpose and intended nature of the business relationship as set forth in Section 3(2)(c) of Wwft.
  • Bong violated section 3, paragraph 2 under D Wwft in connection with the investigation of the source of funds.
  • Bunq has breached Article 8 Paragraph 5 of the Wwft in so far as it must maintain adequate and appropriate risk management systems to determine whether a customer or ultimate beneficial owner is a politically significant person (PEP).

Put more simply, the DNB’s position is that Bonk has violated anti-money laundering rules. This is something that happens often and for which several banks have received heavy fines or reached settlements.

In practice, banks often opt for an amicable settlement, such as ING in 2018 with €775m and ABN Amro in 2021 with €480m. It should also be noted that this relates to a settlement with the Public Prosecution Service and a criminal investigation is already underway. So the context is a bit different than the process in which DNB “only” participates.

Bong objection

In an unusual move for the financial sector, Bonnke filed an objection to DNB’s decision to instruct. Bonong even escalated the dispute by taking it to the highest court. It is rare for banks to choose to fight regulators in court and even go to the highest court.

However, the unusual move of litigation does not mean that the case has practical effect. The CBB agrees with Bonge on the first point. The obligation to specify the purpose and intended nature of the business relationship does not specify the exact methodology to be used in such an assessment.

It follows that Bunq is deemed to be able to determine the purpose and intended nature of business relationships based on the risk profile that has been determined in the context of the chosen assessment method, according to the CBB.

DNB is right on the other two points, which means the original instructions from 2019 still apply. It means at least that it is not a resounding victory, neither for Punk nor for DNB.

What does this mean for the market?

What can be practically deduced from this case is the following:

  • Financial institutions have the discretion to comply with Wwft’s obligations because the law sets open standards.
  • The requirement is that the purpose and nature of the business relationship can be appropriately determined. Since the DNB was proven wrong on this point, other statements made by the DNB about the quality of the decision were not dealt with in substance. This is a missed opportunity to practice, because the lessons that you will follow can be very useful.
  • The use of AI and digital CDD tools is acceptable, although we cannot conclude from the decision exactly how Bong uses them.
  • The decision may give organizations the scope to orient their policy further on business style and customer type.
  • Although DNB seems to be adopting a more favorable position recently, it cannot be ruled out that DNB will take a conservative stance in this regard, although it must be borne in mind that even DNB has made the statement explicitly to know what this case means for supervision.

It was certainly a brave and unusual decision on Bonnck’s part for litigation, and in that respect indicative of a shift in the market. At the same time, it is forgotten that DNB itself was also operating and clearly acknowledging inputs from the market.

As far as I am concerned, the decision is therefore not a new milestone, but rather a sign of current developments in the banking and supervisory landscape. Nuances on both sides of the spectrum are sometimes forgotten in reports, which doesn’t do justice to the steps that DNB and Bunq (need) to take.

What will this look like in the future? In the event of a conflict with the supervisor, institutions may henceforth be inclined to resort to the sole, impartial arbitrator; the judge.

Leave a Comment