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German watchdog imposes strict cap on N26’s client growth

German banking watchdog BaFin has imposed a draconian cap on N26’s client growth in a rare intervention that will slow down the expansion of the Berlin-based online bank. 

The measure was imposed by BaFin in early October after the regulator became increasingly dissatisfied with organisational flaws at the fast-growing bank.

As a result, N26 will only be able to accept 50,000 and 70,000 new customers a month until it has fixed a number of specific issues flagged by BaFin, down from the average of 170,000 clients it had been taking in this year.

The move is the latest escalation in a long-running tussle between BaFin and N26, which has been criticising the lender’s controls for more than two years.

In 2019, BaFin ordered the lender to remove backlogs in IT monitoring, establish written descriptions of processes and workflows, and to check the identity of some of its existing customers for a second time.

Six months ago, the regulator parachuted a special supervisor into the bank tasked with monitoring improvements in anti-money laundering controls that BaFin has ordered. In September, N26 was fined €4.25m for belatedly flagging suspicious transactions of clients to the regulator. 

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BaFin’s cap on new clients — painful for a bank that has emphasised client growth since its founding in 2013 — will be officially announced by BaFin early next month after a four-week time for appeal has expired.

It was pre-emptively disclosed by N26 on Monday alongside a new funding round of €780m which drove the company’s value to €7.8bn, a record level for a German fintech. 

“N26 has agreed with the German regulator to temporarily onboard a maximum of 50,000 – 70,000 customers per month,” the lender said in a statement on Monday, adding that it wants to “lay even stronger foundations for sustainable future growth.”

N26 added that it may have to turn away new clients, which would then be “temporarily redirected to a waiting list” given the “tremendous interest and demand for the N26’s banking products”. The lender stressed that its existing customers will not be affected.

In a separate statement to the FT, N26 said that its “teams have already implemented a number of measures to strengthen governance and compliance structures over the course of this year”.

The lender added that although the measures would have an impact on growth in the short run, “we don’t expect a significant impact of this temporary change on our business plan”.

BaFin declined to comment. 

Valentin Stalf, chief executive and co-founder, said in a press release that the latest funding round puts N26 “in pole position to become one of the biggest retail banks in Europe, all without a single branch”.

US-based tech investors Third Point Ventures and Coatue Management led the latest funding round while existing investors also took part, the company said. 

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