(Bloomberg) -- The years-long crackdown by Germany’s financial regulator on fintechs is set to relax as several affected companies have improved their controls.

“We are seeing progress at individual firms, but not all,” BaFin Executive Director Birgit Rodolphe said in an interview from her Frankfurt office on Tuesday. “There will definitely be cases where we loosen restrictions this year.”

Rodolphe, who oversees the watchdog’s anti-money laundering unit, declined to identify any companies where that is likely to happen. 

BaFin has been leading what’s arguably Europe’s biggest clampdown on mostly digital startup banks known as neobanks as well as on payment firms. As part of that push, it has announced sanctions on about a dozen companies since late 2022, including N26 Bank AG, Solaris SE, a unit of Unzer, and a German entity of Worldline SA.

The measures taken by BaFin have included caps on customer growth, for instance at N26. Other restrictions include bans on certain types of transactions or a requirement to get new business partnerships approved by the watchdog.

That clampdown — which now shows signs of loosening — came after BaFin’s oversight failures in the Wirecard scandal prompted the German government to implement deep changes at the watchdog including appointing a new head, Mark Branson. The payments company had enjoyed a meteoric rise as it duped regulators, auditors and investors for years, only to implode in 2020 in Germany’s largest accounting scandal.

Read More: Wirecard Scars Push Watchdog BaFin to Crack Down on Fintechs

Rodolphe, who joined BaFin the year after the Wirecard collapse, acknowledged that the watchdog’s scrutiny means higher costs. That can be “uncomfortable for fintechs that are growing but not yet profitable,” she said.

The actions taken by the watchdog have likely compounded deep valuation declines across the industry as borrowing costs rise. The regulator’s probes also played a role in a share price plunge at Wordline last year.

But the supervisor pushed back against a perception that it’s singling out payment firms and neobanks. “The law is the same for all,” she said.

Yet she also said that the regulator is looking closely at payments firms as startups have taken over chunks of the sector, which was traditionally dominated by banks, to ensure they don’t create new entryways for financial crime.

One weak link in the chain of transactions underlying payments can be “an open door for money launderers,” she said.

In some cases, BaFin has also appointed monitors — external officials who oversee the progress made by the sanctioned firms in improving controls and report back to the watchdog. The companies pay for those monitors. 

Rodolphe indicated in the interview that they will likely remain at the firms for now.

“We could loosen growth restrictions, but I would typically leave the monitor in place to see if the company gets sloppy when it does more business,” she said. “We want to avoid giving them free rein today and then need to pull it back in in three months.”

International watchdogs have previously faulted Germany’s system for the prevention of money laundering. One major concern is the country’s alleged lack of coordination among more than 300 relevant authorities. 

Read More: Germany to Fight Dirty Money With New Financial Crime Watchdog

While it’s impossible to stamp out money laundering completely from Germany’s financial system, “the barrier to entry has to be as high as possible,” Rodolphe said. To that end, she’s conducting more inspections at the firms BaFin supervises, which stretch well beyond fintechs. 

“These companies take up a lot of our supervisory capacities and we are not interested in staying on top of one of them for as long as possible,” Rodolphe said. “We want them to improve sustainably and allow us to move on, with the occasional follow-up.”

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