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German Regulator Told Challenger Bank N26 to Improve Money Laundering Measures

The challenger bank N26 has received a warning from the German regulator over its internal processes to safeguard money laundering and terror financing.

N26 is one of the biggest challenger banks in Europe with a market value of more than $2.5 billion. The bank’s strategy of expanding its customer base and total transaction volume is providing a room to money launders and terror financer to move their money from one to other. It has extensive market penetration in Europe and the U.K. and the bank recently announced to expand foot-prints in the U.S.

BaFin, the German banking regulator has given a specific time to a digital bank to implement changes and enhance its internal processes.

In the order, BaFin said, “the lender must remove backlogs in IT monitoring and ensure the existence of adequate personnel and technical-organizational equipment in order to comply with its obligations under money laundering law.”

The regulator asked the challenger bank N26 to work on the backlog of flagged transactions; the regulator announced to see the written descriptions of processes and workflows. BaFin also suggested it to re-verify the identity a few customers that have large transactions.

N26, on the other hand, said they are seriously taking the order of regulator and they are taking measures to comply with banking policies.

Regulators don’t always directly detect these transactions. They want banks to have strong internal process and teams to catch these types of illegal transactions.

Digital banks like N26 depend mostly on digital technologies to process transactions through their platform. They don’t have a large staff compared to the user base. N26 is currently serving more than 2.5 million users with 800 employees. Although the growth in employees is likely to increase its costs which could hurt its profitability, the bank plans to comply with BaFin policies and instructions within the deadline.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.

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