German Fintech’s Non-Compliance Stifling Growth

This month, the Bank of Italy banned N26 from taking on new customers or engaging in any transactions with them, as well as from offering new products and services to existing customers. The central bank of Italy stated that the decision followed an on-site inspection conducted between October 25 and December 17 of 2021, which highlighted significant shortcomings in complying with anti-money laundering regulations. With an outright ban on onboarding in Italy, N26 reported that the bank has taken actions to remedy these shortcomings and the regulator “reserves the right to assess the anomalies have been fully overcome, before considering revising the current decision”.

The move comes as regulators across Europe, in recent years, have imposed massive fines on banks that have failed to implement effective anti-money laundering procedures. It has been shown that “a total of 28 financial institutions received fines for AML-related violations in 2020, totaling around £2.6billion”. Only last year, German digital bank N26 was fined $5M for AML failures by the Federal Financial Supervisory Authority (BaFin) after two years of intense investigation by German regulators. BaFin also imposed a limit on how many clients N26 can accept in the given month. To remedy these shortcomings, N26 was ordered to implement internal safeguards to prevent money laundering and terrorist financing.

The latest regulatory response shows that there is a long way to go before AML processes meet regulatory standards. The moment has come to implement effective compliance controls and to put in place internal controls to prevent money laundering as the cost of non-compliance will inevitably rise amidst increased regulatory scrutiny.

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