BaFin's €4.25m penalty against N26, what lessons to learn ?
The Context: An Always More Stringent Regulator Scrutiny
BaFin had already ordered the German payments company to strengthen its money-laundering prevention in 2019. Following last year’s collapse of payments firm Wirecard, BaFin had extended earlier this year its oversight of N26 to cover the whole company and in May 2021, BaFin had already ordered N26 to put in place internal controls and safeguards to prevent money laundering and terrorist financing. At that time, in a quite unusual move, BaFin also installed a special supervisor to monitor the bank.
In a statement, N26 said that this fine related to the late filing of close to 50 suspicious activity reports in 2019 and 2020. In May 2021, BaFin urged the lender to “rectify deficiencies both in IT monitoring and in customer due diligence” and to “ensure that it has the adequate personnel, technical and organisational resources to comply with its obligations under anti-money laundering law”. N26 said it has taken “numerous detailed measures” to strengthen its anti-financial crime controls.
The fine comes one day after Germany’s largest online bank, ING Germany, was criticised in court by a BaFin representative for its slow response to suspicious trades by a client, who later admitted to large-scale insider trading.
What Lessons ? Avoid Compliance Legacy and Build a Strong Customer Due Diligence at the Outset
First, implementing effective compliance controls and mechanisms at the very beginning of your operations will show regulators goodwill and how seriously financial crime is taken. At Ondorse, we are building the missing compliance infrastructure for B2B relationships. Get in touch to learn more about our one of a kind product.
Second, it is important to build, as soon as possible, a robust compliance program to avoid the legacy of an inefficient compliance architecture which can cost you a lot. Indeed, setting up a new compliance organization after years of operations requires very important resources - both in terms of time and money - and may slow down your customer growth. Note that BaFin has capped N26’s customer acquisition, meaning that N26 can only accept between 50,000 and 70,000 new customers per month until it has addressed the problems identified by BaFin. For the past year, N26 has been onboarding new customers at a rate of 170,000 per month, the UK’s Financial Times reported.
At Ondorse, we are building the missing compliance infrastructure for B2B relationships. Get in touch to learn more about our one of a kind product that reduces risk and automates KYB workflows.