Citing the case of Germany's largest digital-only bank (neobank), the Financial Supervisory Service presented the view that easing fintech regulations should be approached cautiously. While some fintech executives argue that regulations constrain growth, failing to comply with regulations could ultimately cause enormous long-term damage to the company.
According to the financial sector on the 13th, the FSS Frankfurt office in Germany said in a recent report that the chief executive officer (CEO) of German neobank N26 stepped back from day-to-day management due to sanctions by local financial authorities. N26 is a fintech corporation regarded as a leading player in European fintech and digital finance. Founded in 2016, it is expected to post annual revenue of about 440 million euros (about 731.9 billion won) this year. At one point, it was valued at $2.6 billion (about 3.0714 trillion won).
According to the FSS report, Germany's Federal Financial Supervisory Authority (BaFin) recently found deficiencies in N26's companywide internal control systems and processes and organization in an inspection. Based on this, BaFin signaled sanctions against co-founder and CEO Stalf and Tayenthal. BaFin is also considering appointing a special supervisor to oversee N26.
In response, Stalf recently stepped down as CEO, and Tayenthal is also expected to leave by year-end, the FSS said. Both co-founders are stepping down from the CEO role.
N26 has already been disciplined by financial authorities for weak internal controls. In 2019 and 2020, BaFin imposed a penalty surcharge of 4.25 million euros on N26 for delayed suspicious transaction reports. In the same year, BaFin found defects in the internal risk management system and imposed additional sanctions. At the time, N26 was showing rapid growth, onboarding 170,000 customers per month, but BaFin capped monthly new customers at 50,000. In 2022, BaFin again found delays in N26's suspicious transaction reports and last year imposed a penalty surcharge of 9.2 million euros.
BaFin President Mark Branson said of N26, "Banking requires 'reliability and stability,' not low expense and innovation," and "even innovators must comply with banking regulations, which is a trust-based regulated industry, not a technology corporation," according to the FSS.
In its report, the FSS said the N26 case has implications for domestic fintech companies and should inform Korea's financial supervision work. The FSS noted, "In finance, where trust and regulatory compliance are crucial, a growth- and expansion-centered management strategy is unsustainable and even leads to management changes."
It also introduced the view held by some fintech executives that strengthening compliance and internal controls restricts growth, adding, "Enhancing profitability and risk management are necessary conditions for a company's long-term growth. Regulatory evasion and weak internal controls can instead impose enormous expense on the company."