Germany Strictly Controls N26 Internet Banking to Combat Money Laundering

In a bid to tackle the persistent issue of money laundering, the German Financial Supervisory Authority, BaFin, has extended its controls over N26 Internet Banking.

In a bid to tackle the persistent issue of money laundering, the German Financial Supervisory Authority, BaFin, has extended its controls over N26 Internet Banking. This move comes as part of the ongoing efforts to enhance scrutiny of Europe's largest financial technology (Fintech) institution. BaFin announced on July 17 that the control measures, initially implemented in 2021, would now include special supervision and limit the number of new customers to 50,000 individuals per month.

Despite the many advantages offered by N26 as an online bank, there have been identified shortcomings within its system, prompting the need for stricter measures. In addition to combating money laundering, BaFin has also mandated N26 to establish comprehensive information technology oversight, bolster quality assurance, and implement effective outsourced controls.

In response to the increased scrutiny, N26 has made substantial investments in security to strengthen its anti-money laundering measures. The institution is committed to streamlining transaction processes, ensuring efficiency, and safeguarding the interests of its customers. Presently, N26 boasts an impressive customer base of over 8 million individuals across 24 countries, primarily in Europe.

Established in 2013, N26 is an online bank, more commonly known as a digital bank. It facilitates banking services such as providing individual bank accounts and NFC smart cards (Mastercard) without the need for traditional transaction points, physical teller machines, or counter staff. All financial activities, including money transfers, can be conveniently carried out online through their website or mobile application.

One of the key contributing factors to N26's remarkable growth lies in its swift identification procedures for new customers. However, this rapid expansion has not been without setbacks. In October 2021, BaFin imposed an administrative fine of 4.25 million euros ($5 million) on N26 for deficiencies in its anti-money laundering system. The fine was associated with approximately 50 transactions suspected of being involved in money laundering between 2019 and 2020. N26 received the penalty for reporting these activities to BaFin belatedly.

It is worth noting that BaFin has been closely monitoring N26's banking activities since 2018. The heightened scrutiny came after German media reports surfaced, highlighting instances where customers were able to open accounts using fake identities at N26.

The extended controls over N26 Internet Banking serve as a pivotal step towards combating money laundering and reinforcing the integrity of financial systems. BaFin's increased supervision aims to rectify the identified system shortcomings, while N26 is determined to enhance its security measures and optimize transaction processes for its growing customer base.