BaFin Orders Remediation & Fines Akbank AG Over Compliance Failures

Key Takeaways

• BaFin's Intervention: Akbank AG is under regulatory scrutiny after BaFin found serious deficiencies in the bank’s operations, including anti-money laundering practices, internal audits, and core banking systems.
• Fines Imposed: Akbank faces fines totaling €432,500, including penalties for failing to inform customers about the retention of telephone conversation recordings and inadequate systems for detecting suspicious transactions.
• Special Commissioner: BaFin has appointed a special commissioner to oversee Akbank’s remediation efforts and ensure the bank addresses the regulatory shortcomings.
• Increased Capital Requirements: The bank must meet higher own funds requirements, aimed at reinforcing its financial resilience in light of its operational failures.

Deep Dive

The German Federal Financial Supervisory Authority (BaFin) imposed a series of regulatory measures on Akbank AG following a special inspection of the institution’s business operations. BaFin’s findings revealed significant shortcomings across several critical areas, including anti-money laundering practices, internal audits, and business transaction documentation. The financial regulator has mandated that the bank address these issues promptly, and has levied a total of €432,500 in administrative fines.

BaFin has outlined several remedial actions for Akbank AG, which must be completed under the supervision of a special commissioner appointed by the regulatory body. Among the most pressing issues identified were deficiencies in the bank’s MaRisk compliance function, its internal audit processes, core banking systems, lending operations, and the documentation of business decisions. Notably, the inspection also uncovered problems within the bank’s anti-money laundering framework, including inadequate staffing of the anti-money laundering officer position, lapses in customer due diligence procedures, and insufficient IT monitoring.

To mitigate these deficiencies, BaFin has imposed increased own funds requirements on Akbank AG, reinforcing the need for the institution to bolster its financial resilience in the face of regulatory shortcomings.

Administrative Fines

BaFin’s penalties for Akbank AG consist of two separate fines. The larger portion, amounting to €395,000, relates to the bank’s failure to inform its customers about the retention period for telephone call recordings and its inability to establish robust mechanisms for detecting and reporting suspicious orders and transactions. These failings have serious implications, as they potentially hinder the prevention of insider trading and market manipulation, areas of growing regulatory concern.

A further €37,500 in fines was imposed for other violations, including the bank’s failure to oversee employee actions effectively and its late submission of annual financial statements for the fiscal year 2023. BaFin also noted Akbank AG’s failure to notify the regulator about the outsourcing of its IT audit function.

Akbank AG’s regulatory breaches highlight critical gaps in the institution’s operational structure. The bank failed to adhere to important transparency and due diligence standards mandated by German and EU financial regulations. In particular, the bank did not inform its customers, either new or existing, about the recording of telephone conversations and their subsequent retention for five years. Under the German Securities Trading Act (WpHG) and EU regulation 2017/565, companies must provide clear, timely notification to customers about such recordings. Failure to comply with these requirements could prevent the provision of securities services via telephone or electronic means.

Furthermore, Akbank AG was found lacking in its obligation to establish effective systems and procedures to detect suspicious transactions, an essential part of ensuring compliance with the Market Abuse Regulation (MAR). This regulation mandates that financial institutions put in place arrangements to detect and report potential market manipulation or insider trading, a failure that prompted BaFin’s fine.

Issues in Monitoring and Reporting

Another major concern identified during the inspection was Akbank AG’s insufficient monitoring of business relationships, which is a key component of anti-money laundering and financial crime prevention efforts. Under Section 10 of the German Money Laundering Act (GwG), financial institutions are required to continuously monitor the transactions executed as part of business relationships. The bank’s failure to maintain effective oversight contributed to several breaches of legal obligations by its employees.

In addition, Akbank AG failed to submit its annual financial statements on time and neglected to notify BaFin about the outsourcing of its IT audit function. These oversights violated regulations set out in the German Banking Act (KWG), which mandates that financial institutions provide timely, comprehensive financial reports and notify BaFin about any significant changes to outsourcing arrangements.

BaFin’s measures against Akbank AG are a reminder of the regulatory authority’s broad powers under the German Banking Act and the Money Laundering Act. BaFin can issue orders to remedy deficiencies in business organization, monitor compliance through appointed special commissioners, and enforce increased own funds requirements to ensure financial stability. The agency can also impose significant fines for failing to meet requirements related to market integrity, customer transparency, and internal controls.

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