Friday's Final Word | week 22
Good morning! Regulators and law enforcement agencies have had a busy past few days with a major cybercrime operation succeeding and further pressure mounted on banks to better play their role in the West’s Russian sanctions.
🖼️ NFTs are a risky business
🧢 BaFin removes N26’s growth cap
🎯 German banks pressured to improve compliance
🗼 EU regulators unconvinced about Dubai
🥊 Cybercrime suffers serious blow from Europol & Co.
⚠️ The dangers of virtual IBANs
NFTs under critique from US Treasury
Blockchain technology continues to struggle to convince regulators, with NFTs becoming the latest assets tokenized via blockchain to be called out for their potential risks. The concerns were put forth in a US Treasury report that identified several criminal use cases, ranging from funding nuclear proliferation and terrorist activities to rug-pulls and money laundering. However, to avoid vilifying the technology, the report repeatedly reiterated that the vast majority of these illicit activities occurred through fiat transactions and financing, and therefore were not unique to the digital asset space. Nevertheless, the report explained, the NFT market has a high potential for abuse and illicit activities, calling for regulation to mitigate the potential threat posed by NFTs.
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N26 growth limits lifted by German financial regulator
Expressing its satisfaction with the progress N26 has made in preventing and combatting money laundering and financial crime, the German financial regulator BaFin has lifted the growth restriction it imposed on the company in September 2021. This is a big win for the German neobank, allowing it to accelerate its expansion, which was limited to initially 50k, then 60k new customers per month while the growth cap was in place. Despite the restriction and stringent scrutiny complicating business, N26 CEO Valentin Stalf has managed to shed some positive light on it, cherishing the “really proactive relationship” that the neobank has developed with the regulator in recent years.
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Yellen warns German banks to boost compliance with US sanctions on Russia
The United States expressed its dissatisfaction with German financial institutions’ handling of sanctions, urging bank executives to step up their efforts to comply with sanctions against Russia and shut down efforts to circumvent them to avoid potential penalties. The pressures of recent weeks underscore Washington’s willingness to force European banks to take sanctions compliance more seriously.
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Dubai revelations prompt questions from EU parliamentarians
European parliamentarians are questioning the Financial Action Task Force’s (FATF) decision to remove the United Arab Emirates (UAE) from its “grey list” after investigative journalists revealed that the country’s real estate sector had been rather open to welcoming dirty money. The leaks are part of the “Dubai Unlocked” investigation, which tells the story of how criminals from around the globe have been flocking to the luxurious metropolis. Consequently, European politicians have expressed their view that the UAE’s removal from the grey list took place prematurely, reaffirming the European Parliament’s earlier decision to block the removal of the UAE from its own list of high-risk countries. Dubai hasn’t yet officially responded to the data leaks, but an unnamed government official reported that the government takes “its role in protecting the integrity of the global financial system extremely seriously.”
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Europol hits malware network in major cybercrime operation
International authorities, led by Europol and involving major European countries, have carried out a major operation against organized malware networks. The sting operation targeting cyber infrastructure used for criminal purposes resulted in 4 arrests, the freezing of illegal proceeds, and the shutdown of over 2,000 domains. According to investigators, one of the main suspects earned at least €69 million in crypto by renting out criminal infrastructure sites to fraudsters in the past few years. The sting, dubbed Operation Endgame, is hailed as “the largest international cyber police operation to date.” While it might not mean a complete end to ransomware attacks, it is celebrated by law enforcement authorities as a “significant blow to the cybercrime scene.” According to Europol, the operation is still ongoing, with more arrests expected.
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Virtual IBANs pose risks, EBA calls for regulatory changes
The European Banking Authority (EBA) has highlighted significant regulatory challenges and risks, including money laundering and terrorist financing, associated with virtual IBANs, calling for a unified regulatory approach. One of the potential risks highlighted in the EBA’s report is the absence of a legal definition for vIBANs at the EU level, resulting in a lack of uniform understanding among national competent authorities and the industry. Because of this ambiguity, there is a divergence in the interpretation and application of existing EU financial services laws, undermining the EU single market and fostering regulatory arbitrage. To tackle this, the EBA’s 30-page report stresses the need for clarifying EU law and calls for the development of a comprehensive legal framework so that vIBANs can realize their potential benefits without creating accompanying challenges.
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