Challenger bank Bunq wins historic ruling on use of AI to combat money laundering

Landmark ruling in Dutch court opens door to AI.

Online challenger bank Bunq has made history by successfully suing its regulator, the Dutch Central Bank (DNB), over the use of AI and machine learning to monitor its anti-money-laundering strategy.

Bunq had been prevented by the DNB from using the technology to carry out the checks needed to comply with regulations on money-laundering. Such disputes are usually settled behind closed doors, but Bunq took the unusual step of suing the regulator. It says it did so because it wanted “to make banking safer for everyone”.

Risk profiles

DNB said Bunq’s technology did not enable it to properly run risk profiles of clients and monitor their transaction, and ordered a change in strategy. But the country’s appeal court has now ruled that the central bank hadn’t provided sufficient proof that Bunq’s mmethodology was not compliant, and it rejected the claim that the challenger bank did not have enough information about its business clients.

The court did, however, find that Bunq should do more to establish the source of customers’ money, particularly those classed as ‘politically prominent people’.

The ruling is noteworthy because it is highly unusual for judges to rule against the decision of a regulatory body. Also, very few banks are willing to take disputes with regulators to the highest legal authority. But Bunq wanted to challenge the thinking behind the decision, and founder and CEO Ali Nikram hailed the court ruling as a victory for progress.

“I’m incredibly happy to see that the Dutch court recognises the importance of the innovation we bring to a centuries-old industry.”

Ali Nikram, CEO and founder, Bunq

He said: “I’m incredibly happy to see that the Dutch court recognises the importance of the innovation we bring to a centuries-old industry.”

On its website, Bunq said: “Being innovators at heart, we’ve always argued for more effective ways to combat fraud and money laundering. Our engineers built risk-based methods and incorporated advanced technology such as Artificial Intelligence to combat fraud smarter and more efficiently.

“However, the Dutch National Bank (DNB) rejected these methods, instead forcing us to use theirs, which in our eyes were antiquated, ineffective and actually harmed the stability of the banking system as a whole.”

Bunq viewed the DNB’s methods as “one-sided reporting from account holders – a system resting squarely on the honesty of fraudsters”. Many challenger banks struggle with traditional, heavily manual processes around AML, which is why they are increasingly looking to the regtech sector for solutions.