Germany’s financial regulator has ordered digital bank N26 to strengthen its controls against money laundering and appointed a special supervisor to monitor one of Europe’s most highly-valued fintechs.

BaFin’s decision to appoint a special supervisor is rare, the only other occasion being with Deutsche Bank in 2018. It has commissioned audit firm Mazars for the role, according to people familiar with the matter.

The intervention from the regulator comes two years after it ordered the Berlin-based bank to strengthen its anti-money laundering practices after raising a number of concerns.

N26, which was valued at $3.5bn in a funding round last year, has been one of the fastest-growing challenger banks in Europe since it was founded in 2013. It has raised close to €800m from investors including Tencent, Allianz X and Peter Thiel. Earlier this year, the bank, which has more than 7m clients in 25 countries, said it was working “towards a public listing in the future”.

Explaining its decision, BaFin said that N26 needed to “rectify deficiencies both in IT monitoring and in customer due diligence” and to “ensure that it has the adequate personnel, technical and organisational resources to comply with its obligations under anti-money laundering law”.

In a statement, N26 said it had already “massively advanced” its money laundering controls, but “nonetheless we acknowledge that more needs to be done in that area.”

Criminal activity tied to online shopping have “accelerated significantly” since the start of the pandemic as more accounts were opened for fraudulent purposes, it added.

The bank promised to improve its transaction monitoring, launch additional safety measures with regard to verifying the identity of clients, and to bolster the resources devoted to anti-money laundering.

Three months after the BaFin’s first intervention in May 2019, N26’s co-chief executive Valentin Stalf told the FT that the issues at the bank were never as grave as suggested in the media, and had been largely fixed.

“We have a full banking license and we comply with every law there is,” he said back then. “There were some things that BaFin criticised that we tackled immediately, and others that we had been working on already.”

BaFin told the FT in a statement on Wednesday that it has decided to take additional regulatory steps in order to fight “ongoing deficiencies with regard to the prevention of money laundering”, adding that those deficiencies continued despite its close scrutiny.

N26 has been given a deadline to fix the shortcomings, BaFin said. “The special supervisor will be our extended arm at the lender,” the regulator said.

Mazars did not immediately respond to a request for comment.