BaFin orders challenger bank N26 to implement money laundering controls


Dive brief:

  • German financial regulator BaFin on Tuesday ordered Berlin-based challenger bank N26 to correct shortcomings in its IT oversight and customer due diligence.
  • The regulator is also appointing a special commissioner – the audit firm Mazars, sources told the Financial Times – to oversee the bank’s progress.
  • N26, in a statement seen by The Times, said it had “massively advanced” its money laundering controls. “Nonetheless, we recognize that more needs to be done in this area,” the company said, adding that e-commerce fraud has “accelerated considerably” since the start of the COVID-19 pandemic.

Dive overview:

Under the ordinance, N26 must “ensure that it has adequate personnel, technical and organizational resources to comply with (…) the anti-money laundering law,” BaFin said.

The regulator has asked the company to meet each of the benchmarks within a limited time frame, but did not detail the duration in a statement Wednesday.

N26 on Wednesday pledged to improve its transaction monitoring, implement additional identity verification measures for customers and further strengthen its anti-money laundering resources, according to the Financial Times.

This is not N26’s first clash with BaFin. The regulator first ordered the challenger bank to step up its anti-money laundering practices in May 2019. It ordered N26 to hire more staff, improve the way it documents its money laundering processes. compliance, re-launch controls on some existing customers and eliminate transaction monitoring backlogs.

BaFin also suffered a credibility lull. The German government sacked BaFin chairman Felix Hufeld in January for the regulator’s handling of the Wirecard accounting scandal.

The appointment of a special monitor is a rarity in itself. BaFin has only appointed such a commissioner once – KPMG, to oversee Deutsche Bank’s compliance with a 2018 ordinance. Last month, BaFin expanded KPMG’s role and asked Deutsche to step up financial crime prevention measures after the auditor finds deficiencies.

BaFin launched an audit of N26 in 2018 after German business magazine WirtshaftWoche discovered that users could open accounts under a false name.

N26, at the time, said it was updating its identity verification process to prevent account opening fraud, according to the Wall Street Journal.

In 2019, N26 co-managing director Valentin Stalf told the Financial Times that the bank’s problems had mostly been resolved and had never been as serious as suggested in the press.

“We have a full banking license and comply with all applicable laws,” Stalf said. “There were some things BaFin criticized that we addressed immediately, and others that we had already worked on.”

The challenger bank plans to file an initial public offering within the next two years, Bloomberg reported in October.

The company, which launched in the United States in 2019, said in February that it plans to add 200 employees in the United States this year, a 75% increase. He left the UK market last year, citing Brexit.

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