N26 is a German neobank which is headquartered in Berlin and offers services across the EU, EEA and the US. Neobank’s offer general banking service from mobile apps and other digital platforms and do not have a physical branch network.
N26 has announced it is to close all its UK accounts by 15 April 2020 citing Brexit as the reason.
N26 has been doing badly (particularly in the UK) and has been under severe regulatory pressure from BaFIN (it is a German bank).
Brexit will inevitably be used as an excuse or a fig leaf by neobanks who are (in fact) closing because they are failing.
Brexit is not news and N26 could have benefited from the Temporary Permissions Regime (TPR) operated by the PRA/FCA in the UK. The UK’s position is to permit ‘passporting in’ where it is prudent.
Many neobanks claim to have a ‘European banking licence’ granted by the ECB but strictly speaking there is just no such thing. For example, Revolut makes this claim on the back of a ‘light’ banking licence granted by Lithuania approved by ECB. This licence has been under threat of withdrawal by Lithuania due to Revolut’s alleged Kremlin connections (Gazprom). A banking licence granted by an EU27 or EEA Member State does confer passporting ‘rights’ but it is not that simple.
The ECB ‘supervises’ only eurozone banks (and those Member States that opt-in). It supervises 117 banks ‘directly, but all the work is done by NCAs. The ECB is a macro-prudential supervisor with no remit over ‘conduct’. N26’s issues were with BaFIN not the Bundesbank or ECB.
For a bank to operate under both EU-derived EU27 regulation and post-Brexit UK regulation the bank might in the future require two substantially different operating models if UK and EU regulation diverge significantly. This would be a particularly acute issue for a “neo-bank” where a streamlined single operating model heavily based on technology is often one core of the business case.
Whilst N26 is citing Brexit as the reason for the withdrawal from the UK, a little consideration concludes this may not be as true as they would like the market to believe.
By Tom Griffiths, Associate Director at Lysis Group