N26 Further Setback After Restrictions Imposed By Italian Watchdog

March 31, 2022
The German challenger bank is again in hot water with EU regulators as the Banca d'Italia places a ban on it onboarding new customers or launching new products.

The German challenger bank is again in hot water with EU regulators as the Banca d'Italia places a ban on it onboarding new customers or launching new products.

Anti-money laundering (AML) compliance has proved an Achilles' heel for N26 bank, as it finds itself unable to onboard new customers in its third-largest market, Italy.

Banca d'Italia, Italy’s central bank, has imposed restrictions on N26 onboarding new customers, "or by engaging in any transaction whatsoever, including of an occasional nature", who were not recorded prior to March 28.

It has also prohibited the offering of new products and services to existing customers, such as crypto-assets.

Last year, the fintech firm had hinted that it was looking at investing in crypto trading.

On its website, Banca d'Italia, said that it has adopted this provision following inspections conducted between October and December last year.

These revealed significant shortcomings in compliance with the AML legislation, according to the regulator, which said that since this investigation N26 has launched some initiatives to remedy these shortcomings.

Banca d'Italia stated that it reserves the right to verify any attempts to overcome the anomalies found, and to revise the measures that it has taken so far.

N26 has tried to calm the situation in its response to the news, telling users that this does not result in any changes for existing customers and that the accounts are still fully available to them.

“Most of the criticisms by the Italian central bank are already being addressed as part of the global action plan to combat increased financial crime,” the bank said. “N26 is confident that through the implementation of the measures to date, significant progress has already been made towards solving the shortcomings identified in Italy over the past year.”

The bank said that it has already made targeted investments in combating money laundering in recent months and that these investments have provided significant improvements in the fight against digital financial crime.

“Among other things, N26 has continued to expand its team of experts, further developed advanced models for machine learning and expanded the monitoring and improved monitoring of transactions in real-time.”

The bank has said that it is committed to implementing all the points noted by Banca d'Italia as soon as possible.

“The local and global teams and experts work closely with the Italian regulator and are fully focused on implementing the improvements in a comprehensive and timely manner.”

Further hot water

This is not the first rebuttal that N26 has faced from a regulator.

Last year, in N26’s home market of Germany, Bafin announced that the bank will need to take measures to ensure the institution has “once again” got a proper business organisation in place and to mitigate risks to the institution’s operational resilience.

Bafin’s intervention was a result of the bank’s substantial growth in recent years, which has highlighted shortcomings in risk management.

As part of the measures ordered by the regulator, a special commissioner appointed by the watchdog is overseeing the implementation.

And similarly to Italy, the regulator ordered risk mitigation measures that place limits on customer growth and on certain risk exposures.

This includes the requirement that N26 substantially reduce the level of customer acquisition permitted each month to a maximum of 50,000 new customers.

Previously in 2019, the Berlin-based challenger bank was also ordered by Bafin to tighten up its AML controls following a number of complaints.

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