Netherlands-based Rabobank has been asked by the national regulator to run additional checks on a group of its clients whose accounts the lender has labeled as low-risk, CEO Wiebe Draijer said Aug. 15.
The Dutch government recently adopted new anti-money laundering legislation, in line with the EU's Fifth Anti-Money Laundering Directive, which requires banks to classify customers in different risk buckets. The Dutch central bank DNB has asked Rabobank for more evidence that a particular subcategory of clients, "a small group compared to the total", are in the low-risk category "for the right reason," Draijer told analysts during a presentation of first-half earnings.
"That's a specific area that we need to correct," Draijer said, although he noted that, apart from the regulatory push, anti-money laundering and financial crime prevention has become a higher priority for the bank in general.
After a "constructive dialogue" with the DNB in the first half of 2019, Rabobank has agreed to take the required actions, including the strengthening of client onboarding in the Netherlands and the remediation of client files, the group said in its earnings report.
Full remediation and process enhancement will require substantial additional efforts and investments in the near term, the bank said. In a move to accelerate client files remediation, especially in its domestic retail business, Rabobank plans to expand resources significantly, aiming at up to 800 in-house full-time employees working on client due diligence and transaction monitoring.
The bank has also started an external hiring campaign in addition to internal reassignments, it said.
Globally, about 1,600 people at Rabobank are currently engaged in financial crime prevention projects across the group and more people should be added in the future, Draijer told analysts. "A significant chunk" of the staff is working on completing the latest regulatory request, he said.
Rabobank is not the only Dutch lender under closer scrutiny. Earlier in August, banking group ABN Amro said it has been asked by the DNB to accelerate its ongoing client due diligence vetting to retail clients in the Netherlands, a group previously excluded from the existing checks. ABN Amro had to increase provisions for the financial crime prevention program and could even face a fine, CEO Kees van Dijkhuizen said at the second-quarter earnings presentation on Aug. 7.
Rabobank's Draijer said he expects a shift in focus towards transaction monitoring as opposed to remediating client files in the future as "active monitoring of client behavior is much more powerful as a source of identifying potential risky activities."
Owing to that, Rabobank is fixing files on one hand — providing the extra evidence the regulator needs — but on the other investing in smarter transaction monitoring technologies, he told analysts.
Further cooperation between banks and the public sector, which has access to a variety of data sources, is also essential for identifying patterns across financial institutions, he said. This three-way collaboration is more likely to uncover big sophisticated money-laundering schemes than sifting through individual files.
In 2018, a number of large European banks, including all major Dutch lenders, were drawn into a money-laundering scandal which started with an internal probe at Denmark-based Danske Bank A/S. The probe discovered more than €200 billion in dubious transactions had passed through Danske's Estonian subsidiary between 2007 and 2015. Further leaks and claims following the probe have prompted European regulators to tighten requirements and test banks' internal controls.