BaFin has also appointed a commissioner to monitor N26’s progress on fixing the issues.

On Wednesday, Germany’s Federal Financial Supervisory Authority (BaFin) ordered challenger bank N26 to implement appropriate internal controls and safeguards and comply with general due diligence requirements to prevent money laundering and terrorist financing. It also appointed audit firm Mazars as a special supervisor to monitor N26. (FT)

N26, one of the fastest-growing challenger banks in Europe and valued at $3.5 billion in a funding last year, has more than 7 million customers across 25 countries.

Repeat failure?

The neobank had been admonished by BaFin on another instance two years ago when the regulator asked it to beef up its anti-ML procedures.

Three months on, N26’s co-chief executive Valentin Stalf told the FT that the matter was not as serious as painted by the media and that it had been substantially rectified by the bank.

“There were some things that BaFin criticized that we tackled immediately, and others that we had been working on already,” Stalf said.

BaFin’s current observations

BaFin asked N26 to “rectify deficiencies both in IT monitoring and in customer due diligence.” It also ordered the bank to ensure “it has the adequate personnel, technical and organizational resources to comply with its obligations under anti-money laundering law.”

The regulator issued its directions based on section 6 (8) and section 51 (2) sentence 1 of the Money Laundering Act (Geldwäschegesetz – GwG).

In January, the German government had sacked BaFin’s president, Felix Hufeld, over the regulator’s handling of the Wirecard accounting scandal.

Response from N26

In a statement, Wednesday N26 said: “Since the beginning of the corona pandemic, criminal activity related to online trading has increased significantly worldwide. Fraudsters manipulate third parties into opening new accounts in order to use them for fraudulent purposes. The demands on banks in the fight against crime have increased.”

It undertook to expand and improve its processes for transaction monitoring, identity verification, and controlling the increasing number of suspected money laundering cases.

“In the past few years, N26 has already pushed ahead with the expansion of preventive measures against money laundering,” the bank said. “However, we recognize that more needs to be done in this area.”

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