Germany Extends Customer Onboarding Cap On N26 Over AML Concerns

July 20, 2023
Germany’s financial supervisory authority (BaFin) has extended anti-money laundering measures imposed on N26 as it keeps a close eye on the fintech sector in the wake of high-profile scandals.

Germany’s financial supervisory authority (BaFin) has extended anti-money laundering measures imposed on N26 as it keeps a close eye on the fintech sector in the wake of high-profile scandals.

On Monday (July 17), BaFin said it had extended measures that prevent N26 from onboarding more than 50,000 new customers a month.

“Despite some progress, the institution still has deficiencies in its systems for preventing money laundering and terrorist financing,” BaFin found.

Once listed as Germany’s most valuable fintech with a $9bn valuation, N26 has had several encounters with regulators in Germany and elsewhere in Europe.

Shortly after it became a unicorn in 2019, BaFin ordered the neobank to optimise its existing processes to prevent money laundering and increase its staff.

This was followed by two additional orders in 2021, one of which related to money laundering concerns in May and another one in October which raised risk and resilience issues, and placed the onboarding restrictions on the company.

A €4.25m fine was handed out to the neobank in September 2021 for the delayed submission of suspicious activity reports in 2019 and 2020.

According to the company, BaFin’s risk and resilience concerns have now been fixed and that order expired.

The anti-money laundering (AML) measures, on the other hand, remain in place along with the onboarding cap “to reduce risk”, BaFin said.

Onboarding restrictions hit harder than a fine

As per the BaFin measure, N26 cannot onboard more than 50,000 customers a month. This is a significant restriction considering that the neobank was onboarding customers at a rate of 2m per year, or around 165,000 customers a month in the two years prior to that.

The measure surprised many in the industry at the time, with some experts indicating that it marked a sea change in the banking watchdog’s approach.

“A customer onboarding cap can significantly impact a fintech company's growth trajectory,” James Allen, founder of, told VIXIO.

“It's like putting a speed limit on a race car. It can still move, but not at its full potential.”

According to Allen, this practice is not as common as imposing fines for AML failures, but it is a more direct way to ensure compliance.

Restricting customer onboarding often hits a company harder than a fine, especially in their early stages of growth.

N26 said it is “committed to complying with all aspects of the order as quickly as possible and will work closely with the special representative appointed by BaFin to coordinate progress in all key areas until all orders are resolved”.

The company’s spokesperson told VIXIO the firm has a “trusted relationship” with BaFin and they are “in close and regular collaboration”.

In the aftermath of Wirecard scandal

The reputation of German regulators has been torn in recent years by various high-profile scandals such as the Wirecard and Greensill scandals.

Once Germany’s fintech champion, Wirecard collapsed in July 2020 after an independent audit report revealed that it had €1.9bn missing in its books.

The large-scale auditing fraud sent a shockwave across Germany and the bloc highlighting deficiencies in the supervision of fintech companies and prompting policymakers to strengthen existing regulations to prevent such failures from happening in the future.

“German regulators have a reputation in Europe as being one of the toughest and they want to maintain that,” said Andrew Gomez, director of Lipis Advisors.

“These previous scandals damaged this reputation.”

It is therefore likely that the German regulators “don’t want to get burned again as with Greensill and Wirecard”, Gomez added.

N26 was founded in Berlin in 2013 by Valentin Stalf and Maximilian Tayenthal. The number in its name stands for the neobank's first address "Unter den Linden 26” in the German capital.

N26 received a full banking licence in Germany in 2016 and was once valued at $9bn before its valuation dropped to $3bn this year. Its investors include Chinese financial giant Tencent, Allianz X and members of the Zalando board.

N26 currently has 8m customers in 24 countries. Despite its continuous growth, the company has not turned profitable yet and it ran at a €172m loss in 2021, according to its latest annual report.

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