Jan 8, 2026
·
By Panos
Introduction
In recent years, regulators across Europe have started to adopt a proactive approach to compliance enforcement. Unlike reactive audits, which are typically carried out after inaccuracies have been flagged or problems have occurred, regulatory bodies, including Germany’s BaFin, seek to assess the extent to which banks have incorporated a prevention-first compliance strategy into their operations.
As outlined in our recent whitepaper, ‘BaFin’s Proactive Mandate: The AML/KYC Blueprint for German Banks’, financial institutions that run afoul of the new mandate will suffer severe penalties. A recent example of this trend is JP Morgan being fined €45 million for IT governance and data integrity failures. Just a few years earlier, N26 was also fined for issues in its reporting process.
BaFin’s strategy is clear. Banks need to center supervision around systemic risk prevention, strengthen financial stability, operational resilience, and generate a more assertive, data-driven model of regulation.
The last part is key. Ultimately, the new approach places sound data management at its core. Specifically, the current trend is one of data centralization, and financial institutions are adopting a single source of truth for their AML/KYC, transaction monitoring, and fraud screening operations. Banks will need to consolidate data in a single, unified hub, allowing them to react more quickly and effectively to threats, develop greater efficiency, and enhance overall operational resilience.
What is Data Centralization and Why is it Important?
Data centralization is at the heart of modern compliance. Without it, controls can collapse under the weight of duplications, inconsistencies, and delays.
Data centralization involves consolidating data from various sources into a single repository. This process eliminates data silos, provides for better operational oversight, and creates an ecosystem that enables better data quality and governance.
In finance and banking, having centralized data is essential for the following three reasons, among others:
Oversight: End-to-end visibility and real-time risk assessment.
Efficiency: Faster assessments, scalable compliance systems, and quicker time to respond to inaccuracies.
Safety: Fewer audits are needed due to a proactive, “data-first” approach, while banks with centralized data that are audited will be able to respond to auditor needs, reducing long-term audit burden.
Five Signs Your Bank Needs to Centralize Its Data
For banks seeking to enhance their data management and mitigate their audit risk, several key indicators suggest that their internal systems require an overhaul.
Fragmented software: Data silos often emerge as a result of fragmented tech and non-interoperable software, creating “black areas” for oversight, increasing risk, and the potential for high-risk transactions going unflagged.
Lack of escalation: When transactions are flagged, is there an established escalation process? The same question arises for effective KYC management. If there’s not a clearly established line of escalation, how are potential threats escalated?
Legacy IT systems: Outdated proprietary software that doesn’t incorporate the latest compliance legislation or account for new threats will inevitably lead to increased risk for banks using it.
Lack of accountability: Human error also accounts for risks going unflagged. Is organizational training up to date? Do key stakeholders have direct lines of communication with each other, and are they able to create a comprehensive compliance strategy?
Alert Overload: Automatic alerts for transactions over an arbitrary amount and poorly structured investigations cost time and resources
What is a Data Moat and Why is it Essential
A data moat refers to the competitive advantage companies (in this case, banks and financial service providers) benefit from by leveraging proprietary data that competitors cannot easily replicate. Essentially, it’s about how effectively a company can collect, process, and utilize data in a manner that allows it to achieve proactive threat intelligence and model adaptation.
When done correctly, it establishes an internal compliance process that puts them in an advantageous position. The Data Moat is established once raw data is utilized in a manner that can create a predictive analysis framework, generating a sustained competitive advantage.
How to Centralize Compliance Operations - Our Three-Phase Plan
In our whitepaper on BaFin’s new mandate, we outline three steps to centralizing data in a way that ensures banks stay proactive and can turn their compliance strategy into one that’s proactive and ready to meet new regulatory demands.
While a more comprehensive overview can be found in the whitepaper, in short, the three main steps are as follows:
Fix the Foundation: Centralize data, map workflows, and define KPIs that stakeholders will seek to achieve.
Automate the Basics: Implement case management, automate screening, and build audit trails
Build the Data Moat: Leverage internal and external data to generate predictive analysis models that enable more efficient operations.
We recommend starting at the foundational level, with workflow mapping, KPI setting, and implementing automation, then moving to case management and audit trails, before finally establishing the data moat that will generate the competitive advantage.
Any compliance strategy will also need to be human-centric. While AI will increasingly play a larger role in AML/KYC processes and has already led to impressive improvements in efficiency, human-centricity remains a key aspect of any compliance strategy. Whether that be organizational training, delegating roles effectively, or establishing accountability for key processes.
Conclusion
Data is increasingly at the core of any aspect of a bank’s operations, and compliance is no exception. To effectively respond to threats, avoid audits, and establish clear oversight of transactions, data centralization is a key requirement that will enable banks to turn compliance from a cost center to a strategic advantage, exactly what BaFin now expects.