German Regulator Extends Anti-Money Laundering Measures at N26 Amid Ongoing Compliance Concerns

N26, the German-based digital bank, is facing an extension of anti-money laundering (AML) measures imposed by the German regulator BaFin, as the watchdog continues to express concerns over the bank’s compliance controls. The extension comes after BaFin had fined N26 €4.25 million in 2021 for lax money laundering controls and had subsequently imposed a temporary cap on the number of new customers the bank could onboard each month.

The temporary cap, initially set at 50,000 new customers a month, will remain in place, and BaFin has taken additional steps to closely monitor the bank’s progress. An audit presence has been established at N26 to ensure the bank takes adequate measures to improve its AML procedures. BaFin’s latest demands include a focus on enhancing IT monitoring, intensifying quality assurance processes, and implementing more robust controls for outsourcing arrangements. The regulator’s statements indicate that N26 still exhibits deficiencies in its systems despite some progress being made in response to previous penalties.

In response to the extension of the AML measures, N26 stated that it has made significant investments in strengthening its anti-money laundering measures and is committed to swiftly complying with all aspects of BaFin’s order. However, it remains under BaFin’s scrutiny as it continues to address compliance shortcomings.

The regulator’s decision to extend the AML measures at N26 comes after the bank was fined approximately $5 million in mid-2021 for AML-related issues, highlighting the persistent challenges the digital bank faces in meeting regulatory expectations.

This is not the first time N26 has faced regulatory actions over AML concerns. In March of the previous year, Italy’s central bank had blocked the bank from acquiring new customers in Italy due to similar money laundering risks.

Potential Lessons for Compliance Teams

Proactive Approach to Compliance: Compliance teams should adopt a proactive approach to identify and address potential AML risks. Implementing comprehensive AML measures and internal controls is crucial in preventing regulatory penalties and maintaining the trust of regulators.

Continuous Monitoring and Improvement: Regularly monitoring and enhancing AML procedures are essential to stay ahead of evolving risks and changing regulatory requirements. Compliance teams should conduct periodic risk assessments and audits to identify and rectify any weaknesses in their compliance systems.

Investment in Technology and IT Monitoring: Adequate IT monitoring and technology solutions are essential for effective AML compliance. Compliance teams should invest in advanced technologies that can help detect suspicious activities and ensure compliance with AML regulations.

Quality Assurance and Reviews: Instituting robust quality assurance processes can help compliance teams identify gaps and ensure that AML measures are consistently and effectively implemented across the organization.

Transparency and Communication: Maintaining transparent communication with regulators is crucial. Compliance teams should promptly address any regulatory concerns and demonstrate a commitment to addressing deficiencies in compliance systems.

Learning from Past Mistakes: Compliance teams can learn from previous regulatory actions and fines to strengthen their AML practices. Conducting internal reviews and root-cause analyses of past compliance failures can lead to more effective risk mitigation strategies.

N26’s extended AML measures underscore the critical importance of robust and proactive compliance practices for financial institutions. Compliance teams must continuously improve their AML procedures, invest in technology, and collaborate closely with regulators to ensure full compliance with AML regulations and maintain the integrity of their institutions.

Article Credit: https://www.grcreport.com/post/german-regulator-extends-anti-money-laundering-measures-at-n26-amid-ongoing-compliance-concerns?mc_cid=ed90e77011&mc_eid=6ebe4ab703