Pressure on the N26 smartphone bank: Bafin should consider restricting new business

The fast-growing N26 smartphone bank may soon suffer a severe setback: according to a report by Handelsblatt, the German financial watchdog Bafin is considering restricting the bank’s new business. The reason for this is regulatory deficiencies in the fight against money laundering and fraud, which N26 has not yet addressed. Among other things, the financial regulator could restrict acceptance of new clients, it says in the report.

“The patience of the supervisor of the bank is broken,” Handelsblatt quotes an unnamed observer He cites people familiar with the topic. Bafin did not want to comment on the matter at Heise’s online request, but he did not deny such a project either. According to the report, an official decision on this procedure has not yet been taken. However, everything indicates that the decision will be made in time.

N26 was also somewhat cautious about this issue. A spokesman said that details of cooperation with the regulatory authorities could not be commented on. The bank confirmed in a press releaseCooperation with financial and supervisory authorities is an essential part of daily work and has intensified further in the past few months. N26 also announced that it will enhance its management level to manage regulatory requirements, including with a new Chief Risk Officer and Group Risk Management Director.

Bafin has been targeting N26 for a long time due to its shortcomings. More recently, in May 2021, the authority urged N26 to take a tougher approach to money laundering and even appointed a special officer to monitor it. Baffin explained that the smartphone bank must eliminate deficiencies both in IT monitoring and in identifying and verifying customers. Moreover, the bank must ensure “a sufficient number of personnel and technical and organizational equipment to comply with its anti-money laundering obligations.”

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Previously, in May 2019, Baffin reprimanded Neobank’s inability to prevent fraud and money laundering and called for improvement. According to the insider cited by Handelsblatt, N26 has not adequately complied with this from the FSA’s perspective. The bank itself says that the requirements are met.

In addition, N26 appears to be very popular among scammers who use account numbers to run fake stores, for example. When doing this, third parties are often called, who are asked to open accounts in exchange for payment or under false pretenses. A Handelsblatt survey among state criminal investigation offices showed the bank also shows more than average in reports of suspected money laundering.

N26 was founded in 2013 and has had its own banking license since 2016. Over the years, the company has grown rapidly and expanded internationally. According to its own information, N26 now has 7 million customers and 1,500 employees. Many observers question whether growth has been prioritized too much and infrastructure has been neglected. “Growth always leads to regulatory challenges,” said an N26 spokesperson, referring to significant investments in systems and personnel. In the past few months in particular, spending on security has been significantly increased and enhanced.

According to Handelsblatt, one of the problems can also be high employee turnover. So former employees talked about the constant changes in personnel, so that the accumulated knowledge is lost again and again. People who describe themselves as ex-employees also write something similar in their business Comments on the Kununu . platform. For example, she says, “You either get fired or people go too fast voluntarily.”

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