Much that has been written about the General Data Protection Regulation (GDPR) relates to the burden of obtaining proper consents in order to process data. This general theme has provoked questions about whether and how financial institutions can process data to fight financial crime if they need consent of the data subject. While there are certainly valid questions, GDPR is much more permissive to the extent data is used to prevent or monitor for financial crime.
Clients and counterparties will oftentimes be more than happy to consent to data processing in order to participate in financial services. But consent can be withdrawn, so offering individuals the right to consent will give the impression that they can exercise data privacy rights which are not appropriate for highly-regulated activities.
Rather than relying on consent, the GDPR also permits (1) processing which is necessary for compliance with a
legal obligation to which the controller is subject and (2) processing which is necessary for the purposes of the
legitimate interests pursued by the controller or by a third party.
Some areas of financial crime prevention are clearly for the purpose of complying with a legal obligation. For example, in most countries there are clear legal obligations for monitoring financial transactions for suspicious activity to fight money laundering. The European Data Protection Supervisor
stated in 2013 that anti-money laundering laws should specify that "the relevant legitimate ground for the processing of personal data should… be the necessity to comply with a legal obligation by the obliged entities…." The 4th EU Anti-Money Laundering Directive requires that obliged entities provide notice to customers concerning this legal obligation, but does not require consent be received. And the UK Information Commissioner's Office gave the
example of submitting a Suspicious Activity Report to the National Crime Agency under PoCA as a legal obligation which constitutes a lawful basis.
Very few commentators have attempted to cite a legal authority for anti-fraud legal obligations. The Payment Services Directive 2 (PSD2)
requires that EU member states permit personal data processing by payment systems and that payment service providers prevent, investigate and detect payment fraud. But PSD2 has its own requirement for consent and this protection may fail without adequate implementing legislation in the relevant jurisdiction. Another possible angle is that fraud is a predicate offense for money laundering, and therefore the bank has an obligation to investigate fraud in order to avoid facilitating money laundering.
"Legitimate interests" are also permitted as a basis for processing. However, this basis can be challenged where such interests are overridden by the interests or fundamental rights and freedoms of the data subject which require protection of personal data. Financial institutions may not feel comfortable threading the needle between these ambiguous competing interests.
However, the GDPR makes clear that several purposes related to financial crime should be considered legitimate interests. For
example, "the processing of personal data strictly necessary for the purposes of preventing fraud also constitutes a legitimate interest" and profiling for the purposes of fraud prevention may also be
allowed under certain circumstances. It is also worth recognizing that many financial market crimes such as insider trading, spoofing and layering are oftentimes prosecuted under anti-fraud statutes.
Compliance with a
foreign legal obligations, such as a whistle-blowing scheme required by the US Sarbanes-Oxley Act, are not considered "legal obligations," but they should qualify as legitimate interests.
While legal obligations and legitimate interests do not cover all potential use cases, they should cover most traditional financial crime processing. Some banks have been informing their clients that a legal obligation justifies their processing for AML and anti-fraud. Others have included legal obligations and/or legitimate interests as potential justifications for a laundry list of potential processing activities.
Financial institutions should use the remaining days before GDPR's effective date to provide the correct notifications to data subjects and confirm that their processing adequately falls under a defensible basis for processing. And with this basic housekeeping performed there is hopefully little disruption to their financial crime and compliance operations.
No legal or accounting advice is provided hereunder and any discussion of regulatory compliance is purely illustrative.
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