German financial regulator BaFin has ordered challenger bank N26 Bank to implement appropriate controls and safeguards to prevent money laundering and terrorist financing.
Furthermore, the watchdog has appointed a special commissioner to ensure that the German neobank implements its order. The commissioner will also monitor N26 Bank’s progress in resolving the other identified shortcomings.
The regulator stated: “In order to monitor the implementation of the measures, BaFin is appointing a special commissioner under section 45c (1) in conjunction with subsection (2) of the Banking Act (Kreditwesengesetz – KWG).
“The special commissioner is to provide BaFin with ongoing updates regarding the progress of the implementation.”
BaFin has asked the neobank to comply with general due diligence requirements. In particular, the regulator has ordered the bank to fix IT monitoring deficiencies and customer due diligence. Additionally, under the anti-money laundering law, N26 Bank has to ensure that it has enough personnel, technical, and organisational resources for fulfilling its obligations, said BaFin.
These measures must each be implemented within a set period. The notice has been final and binding since 11 May 2021.
However, N26 Bank said that it has already expanded its preventive measures against money laundering.
N26 detailed that fraudsters were misusing the platform by pushing third parties to open accounts, which were used for fraudulent purposes and that more needs to be done to address the issue. “Since the start of the COVID pandemic, criminal activity in connection with online trade has increased strongly around the world,” the neobank said.
“The demands of BaFin aim among other things to prevent the opening of such accounts, to identify illegal financial transactions as quickly as possible and to block them.”
This isn’t N26’s first run-in with BaFin. N26 first found itself in hot water with the German regulator back in May 2019 after similar concerns were raised where it was ordered to strengthen its anti-money laundering practices. The watchdog decreed N26 to hire more staff, improve the way it documents its compliance processes, rerun checks on some existing customers and eliminate transaction monitoring backlogs.
The measures also included removing backlogs in IT monitoring, setting up process descriptions and workflows in writing, and reidentifying a specified number of existing customers.
The latest order comes as BaFin tightens up oversight in the wake of the Wirecard scandal. A similar regulatory order was issued to German lender Deutsche Bank last month.
Launched in 2013, N26 Bank serves nearly seven million customers through a workforce of about 1,500 employees. The mobile bank, which operates in Germany, Spain, France, the US, Switzerland, Austria and other markets, is looking to file an initial public offering within the next two years.
Copyright © 2018 RegTech Analyst
