When the Neobank Collapses : FinTech Restructuring Between BaFin and Insolvency Law

When the Neobank Collapses: FinTech Restructuring Between BaFin and Insolvency Law

Few industries have transformed the financial sector in recent years as profoundly as the FinTech industry. Neobanks, payment service providers, and crypto platforms promised faster, cheaper, and more user-friendly financial services. But reality catches up with digital business models too: rising compliance costs, tightening regulations, and a challenging market environment have recently pushed several FinTech companies into existential difficulties. Restructuring such companies presents advisors and insolvency administrators with unique challenges -- because here, banking supervisory law and insolvency law overlap in ways not encountered in traditional corporate restructuring.

The Regulatory Foundation: KWG and ZAG

Licensing Requirement as Starting Point

FinTech companies that conduct banking business or provide financial services require a licence under the German Banking Act (KWG). BaFin decides on the granting of licences and can take far-reaching supervisory measures pursuant to § 6 KWG. For payment service providers, the Payment Services Supervision Act (ZAG) additionally applies, transposing the European Payment Services Directive PSD2 into German law.

Special Organisational Requirements

§ 25a KWG obliges institutions to maintain proper business organisation, including adequate risk management, internal control procedures, and proper IT security. For FinTechs whose business model is based on technological innovation, these requirements are particularly relevant -- and particularly costly. Meeting supervisory requirements ties up considerable resources that are often already scarce at young, growth-oriented companies.

FinTech Crises: Causes and Patterns

Compliance Costs as Crisis Accelerator

A central pattern in FinTech crises is the vicious circle of growth pressure and compliance costs. Many FinTechs were funded with venture capital and geared towards aggressive growth. However, regulatory requirements -- anti-money laundering, IT security, capital requirements -- increase disproportionately with business activity. When growth stalls, fixed compliance costs become an existential burden.

The Wirecard Case: Lessons for the Industry

The spectacular collapse of Wirecard AG in 2020 has left a lasting mark on the entire FinTech industry. The Wirecard insolvency, with creditor claims exceeding 12 billion euros, demonstrated the devastating consequences of balance sheet manipulation and supervisory failure. The Federal Court of Justice confirmed in its ruling of November 2025 that shareholder claims in the insolvency of a financial services provider are subject to special treatment.

N26: Regulatory Measures as Warning Signal

Even without insolvency, BaFin can intervene sharply. The BaFin measures against N26 -- including a growth restriction to a maximum of 50,000 new customers per month and the appointment of a special commissioner -- illustrate how regulatory interventions can fundamentally alter a neobank's business model. In December 2025, BaFin again imposed additional capital requirements and business restrictions.

The SAG: Special Insolvency Law for Financial Institutions

Priority of Resolution over Insolvency

For credit institutions and certain financial service providers, the Recovery and Resolution Act (SAG) applies alongside the general Insolvency Code, transposing the European Bank Recovery and Resolution Directive (BRRD). The SAG establishes a special regime that takes precedence over general insolvency law and grants BaFin as resolution authority far-reaching powers.

Recovery Planning as Prevention Instrument

The SAG obliges financial institutions to prepare recovery plans detailing the measures the institution can take in a crisis to restore financial stability. For larger institutions, resolution plans must also be prepared, describing how the institution can be wound down in an orderly manner in an extreme scenario without jeopardising financial stability.

Resolution Instruments

The Bundesbank and BaFin have four core resolution instruments at their disposal:

• Sale of business: Transfer of business lines to an acquirer
• Bridge institution: Transfer to a temporary public institution
• Asset separation: Segregation of problematic portfolios
• Bail-in: Creditor participation through conversion of claims into equity

The bail-in instrument is of particular significance for FinTech creditors: the resolution authority can write down liabilities in whole or in part or convert them into core capital. Only covered deposits up to 100,000 euros are protected.

The Interface: Supervisory Law Meets Insolvency Law

Inability to Pay Under § 17 InsO

The classic ground for opening proceedings -- inability to pay (§ 17 InsO) -- applies in principle to FinTech companies as well. However, the particularities of the business model must be considered: for payment service providers that hold customer funds in trust, a distinction must be drawn between the company's own liabilities and pass-through items. The obligation to segregate customer funds under the ZAG has a direct impact on liquidity assessment.

Own Application vs. BaFin Intervention

While in "normal" companies the management files the insolvency application, for financial institutions BaFin can file the application to open insolvency proceedings or instruct the institution to file itself. In practice, a tension frequently arises: management wants to restructure, but BaFin sees financial stability at risk and pushes for resolution.

Deposit Protection and Customer Safeguarding

A central issue in FinTech restructuring is protecting customer deposits. The Deposit Guarantee Act (EinSiG) guarantees protection of up to 100,000 euros per depositor per institution. For FinTechs operating purely as payment institutions that do not accept bank deposits, however, the compensation scheme does not apply in the same way. Customer funds must be secured through the segregation requirement -- a mechanism that does not always function smoothly in practice.

Continuity of Payment Services: A Special Challenge

The Problem of Shutdown

When a neobank enters crisis, thousands or millions of customers face the question of whether they can still access their accounts. Unlike a traditional bank insolvency where physical branches remain accessible, with digital banks everything depends on the technical infrastructure: servers, apps, interfaces. If this infrastructure is not maintained -- for example because IT service providers go unpaid -- a complete failure of payment services threatens.

Business Continuation in Insolvency Proceedings

The insolvency administrator faces the task of maintaining IT systems while simultaneously minimising costs. Cloud services, licence agreements, and outsourcing arrangements must be assessed for their viability. BaFin supervision of FinTech business models also extends to requirements for IT continuity.

European Dimension

BRRD and Single Resolution Mechanism

FinTech restructurings are increasingly a European matter. Many neobanks operate cross-border with a single licence (passporting). In a crisis, national and European resolution authorities must cooperate. The Single Resolution Board (SRB) is responsible for systemically important institutions, while the national BaFin coordinates resolution for smaller institutions.

Impact of PSD2 on Restructuring

The European Payment Services Directive PSD2 has opened the market for payment services and thereby increased the complexity of restructuring. Third-party providers accessing bank accounts via interfaces are also affected by a FinTech insolvency. Ensuring interface availability thus becomes a standalone restructuring problem.

Practical Recommendations

For FinTech Managing Directors

1. Early recovery planning: Prepare a recovery plan even if the SAG does not mandate it for your institution. Early engagement with crisis scenarios significantly increases your capacity to act.
2. Proactive dialogue with BaFin: Use BaFin's FinTech Innovation Hub and seek early dialogue with the supervisor when difficulties emerge.
3. Secure compliance budget: Do not underestimate the costs of regulatory compliance. Plan sufficient buffers for increasing requirements.
4. Ensure IT resilience: Make sure critical IT systems can continue operating even in a crisis. Document dependencies and keep contingency plans current.

For Creditors and Investors

1. Understand the regulatory environment: Familiarise yourself with the particularities of the SAG and supervisory intervention powers. A bail-in can significantly devalue claims.
2. Check deposit protection: Clarify whether your claims fall under deposit protection or whether they are unsecured claims.
3. Actively exercise creditor rights: Register claims early and participate in creditor meetings. In FinTech insolvencies, active creditor participation is particularly important.

Conclusion

Restructuring FinTech companies is not an ordinary insolvency proceeding. The overlay of banking supervisory law, special resolution law, and the general Insolvency Code creates a complex regulatory framework requiring specific expertise. Recent experiences with Wirecard, BaFin measures against N26, and smaller neobank closures demonstrate that anyone restructuring in the FinTech space must combine regulatory and insolvency law expertise -- while keeping the technological particularities of the business model in view.

At compleneo, we support you in the restructuring of FinTech companies -- from early restructuring advice through accompanying supervisory proceedings to representation in insolvency. Get in touch with us.