N26 Hires UBS Executive to Lead Turnaround Amid Regulatory Pressure

Mike Dargan is a courageous man. The top technology manager at UBS will move to N26, one of Europe’s largest and best-known fintech companies, next April. He will replace Maximilian Tayenthal – the co-founder of the German neobank – and Marcus W. Mosen, who currently share the COO role. It will be a difficult task for Dargan. The startup, founded in 2013 by Tayenthal and Valentin Stalf, is a fintech pioneer, but has been in crisis mode continuously since 2021.

On Monday, the German Federal Financial Supervisory Authority (BaFin) issued another warning to the neobank N26 due to various violations during the 2024 financial year. The regulators ordered N26 to take measures “to establish a proper business organization.” Furthermore, equity capital requirements were increased and new mortgage business in the Netherlands was restricted. A fine of €15,000 was also imposed. A special representative will monitor compliance with the order.

Massive risk problems for N26

The German Federal Financial Supervisory Authority (BaFin) declined to comment on the specific offenses the fintech company allegedly committed this time. An N26 spokesperson stated that the company is in “close and constructive dialogue with the supervisory authorities and the appointed special representative.” The company is actively pursuing the implementation of an action plan in the coming months. The measures imposed by BaFin include adjustments to governance structures, processes, and control mechanisms. N26 declined to disclose the new capital requirements.

In the past, N26 repeatedly struggled with risk management. Its risk monitoring processes couldn’t keep pace with the startup’s rapid growth. As early as 2019, the neobank was placed under supervision by BaFin (the German Federal Financial Supervisory Authority) due to inadequate controls, and its growth was capped at 50,000 customers per month.

In 2021, the environment deteriorated, and problems with the authorities intensified. Due to significant shortcomings in its anti-money laundering measures, the Italian central bank also imposed a moratorium on new customers. At the same time, the company withdrew from the American market, costing hundreds of thousands of customers. That year, N26 achieved a valuation of $9 billion in its last funding round. This value is likely significantly lower today.

Difficult starting point

In 2022, regulators again identified deficiencies in the bank’s anti-money laundering measures. Two years later, the neobank was fined €9 million. The management style of the two founders also came under criticism, with insiders complaining of “a culture of fear and blame.” Insufficient banking knowledge was also a concern. In 2024, BaFin lifted the growth restriction, but the problems persisted.

Although the owners – including major hedge funds, venture capital investors, and Singapore’s sovereign wealth fund – continued to support the startup, they are pushing for a new shareholders’ agreement. According to the terms currently being negotiated, the two founders, who together hold approximately 20 percent of the shares, would have to relinquish their special voting rights, which give them the right to veto key decisions such as financing or an IPO.

In return, existing investors would forgo their guaranteed annual return of 25 percent, and Tayenthal would leave the management board. This condition has been met: “Looking ahead to the next decade, I am stepping down with confidence to place N26 in the highly competent hands of Mike,” the co-founder is quoted as saying in a statement.

Andreas Dombret, the chairman of the board of directors and former Bundesbank manager who has been with the neobank since November, praised Dargan for his “comprehensive industry knowledge, strong leadership skills,” and his “clear vision for the future development of N26.”

Big banker in startup

As Group Chief Operations and Technology Officer at UBS and a long-time bank manager, Dargan brings the ideal combination of IT and banking expertise. At the Swiss banking giant, he is a driving force behind the technical integration of Credit Suisse into UBS. This involves the migration of thousands of applications and, so far, appears to be proceeding largely without disruption.

However, Dargan has spent his entire career at major banks such as UBS, Standard Chartered, and Merrill Lynch. Whether he can be equally effective in a less structured startup environment remains to be seen.

Dargan is taking over N26 in an extremely challenging situation. However, operationally, the situation could soon improve. A few days ago, outgoing co-CEO Marcus Mosen told the Börsen-Zeitung that the neobank would post a profit for the first time this year. Next year, the result is expected to increase significantly.

According to Mosen, the regulatory issues have not had a negative impact on customers. N26 currently has “over 5 million revenue-generating customers” in 24 European markets. The German Federal Financial Supervisory Authority (BaFin) still needs to approve Dargan’s appointment as N26 CEO.

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(Featured image by Adeolu Eletu via Unsplash)

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