German financial market regulator, BaFin has gone after the local neobanking giant, N26 and issued an order to strengthen controls and safeguards over preventing money laundering and terror financing using the platform.
Announced on Wednesday, the regulator appointed a ‘special commissioner’, who will be responsible to monitor the implementation of the order. Though the order stressed that the digital bank should comply with the general due diligence requirements, it did not specify any violation on the part of the company.
However, N26 detailed that fraudsters were misusing the platform by pushing third parties to open accounts, which were used for fraudulent purposes. “Since the start of the COVID pandemic, criminal activity in connection with online trade has increased strongly around the world,” the neobank said.
“The demands of BaFin aim among other things to prevent the opening of such accounts, to identify illegal financial transactions as quickly as possible, and to block them.”
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In addition, the company revealed that it is closely working with the regulator to improve its systems and implement the orders.
Many Deficiencies Have to Be Fixed
BaFin’s public order wants N26 to rectify deficiencies both in IT monitoring and in customer due diligence. Additionally, the digital bank has to ensure that it has adequate personnel, technical and organizational resources to comply with its mandatory obligations towards preventing financial crimes.
BaFin further added that the orders must be implemented within a specific timeframe, without disclosing it to the public.
The German regulator’s interest in the digital bank is seen by many as its strengthening grip on the fintech market following the collapse of Wirecard. Furthermore, a similar regulatory order was issued to German lender Deutsche Bank last month.