German financial regulator ends anti-money laundering cap on N26 listings after $10 million fine

After the Wirecard scandal, the German financial regulator BaFin began to take a closer interest in young fintech startups that wanted to grow at a rapid pace: prevention is better than cure.

In particular, N26, a Berlin-based banking startup that raised hundreds of millions of euros and quickly became a unicorn, has had a complicated relationship with BaFin for several years. The regulator imposed a cap on new registrations as a sanction to force the startup to improve its anti-money laundering processes.

This week, N26 announced that BaFin would lift the growth restriction from June 1, 2024. The cap was initially set in 2021 at 50,000 new customers per month. By the end of 2023, it increased slightly to 60,000 customers per month.

Last week, as part of the conclusion of this monitoring period, BaFin fined N26 €9.2 million (approximately $10 million at the current exchange rate) for breaches in reporting suspicious activities that occurred in 2022. N26 expected this fine because it had set aside provisions in its 2022 financial statements. According to the company, it also invested €100 million to improve its compliance team and processes since 2022.

“We are delighted with the confidence of our regulators and will continue our close discussions in the future. In recent years, we have been able to make significant progress in preventing and combating money laundering and financial crime,” said Valentin Stalf, co-founder and CEO of N26, in a statement.

With this restriction seriously hampering N26’s growth, the company has adjusted its strategy to focus on its existing customers. In Spain and Germany, N26 offers savings accounts. In some markets, users can also get a loan of up to €25,000 from the app.

The company also added crypto and stock trading, partnering with Bitpanda and Upvest respectively. You can even subscribe to insurance products from the app. All these additions aim to increase the average revenue per user.

In 2023, N26 recorded a loss of 100 million euros but the situation is expected to improve this year thanks to higher interest rates, new sources of income and the end of the registration cap. The company said it expects to achieve “monthly profitability” at some point in the second half of 2024.