EU supervision accuses BaFin of omissions in the Wirecard scandal

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In the Wirecard scandal, the European securities regulator ESMA accuses the German financial regulator BaFin of omissions and lack of independence from the Ministry of Finance.


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DANIEL ROLAND/AFP/Getty Images


In view of the large number of reports by BaFin to the Ministry of Finance, there was an increased risk of the ministry’s influence, said ESMA in its report published on Tuesday. Especially since BaFin informed the ministry in some cases before taking action. ESMA also criticized the German balance sheet control system.

Wirecard The balance sheet scandal collapsed at the end of June, after 1.9 billion euros turned out to be non-existent on the balance sheet. According to the public prosecutor’s office, the managers are said to have inflated the balance sheet with air bookings in Asia and thus concealed losses in their core business. Banks and investors alone have been cheated by more than three billion euros.

BaFin had commissioned the German Invoicing Unit (DPR) several times to review Wirecard financial reports. Until the collapse of the Dax group, no results of these tests were available. ESMA has now criticized the fact that BaFin and the FREP did not share the same understanding of the roles and opportunities the two institutions had. The financial supervisory authority was not in a position to fundamentally evaluate the work of the FREP and to decide on this basis whether it should attract the investigation of Wirecard balance sheets. The exchange of information between BaFin, the FREP and others was hindered by the applicable confidentiality obligations. Even within BaFin, various teams did not coordinate sufficiently.

The FREP’s analysis was inadequate in view of the serious allegations of falsification of accounts against Wirecard made by whistleblowers and the media, according to the report, which was drawn up by a panel of experts from other financial regulators and ESMA. In addition, the DPR and BaFin did not examine Wirecard balance sheets for the years 2016 to 2018, or not in good time.

Scholz: Esma report on Wirecard supports proposals from the Ministry of Finance

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Federal Finance Minister Olaf Scholz (SPD) has assessed the investigation report by the European Securities and Markets Authority Esma on the role of German financial regulators in the Wirecard scandal as confirmation of his own reform proposals. “First of all, it is good that this report is now available, which is in line with the line that we ourselves have taken with our legislative procedure to reform supervision and review,” said Scholz in a statement before the Eurogroup consultations.

This affects both the German auditing agency for accounting (DPR) and the financial supervisory authority Bafin. All of the proposals that are in the German legislative package are also found in Esma’s statement, as a first glance shows. “That is good news,” said Scholz.

With a view to a fear emanating from the Esma report of an increased risk of the finance ministry influencing Bafin, the SPD politician stated that the report said that the ministry was “very active in this matter”. Against the background of the debate in Germany, this can be understood as “a small, cautious sign of the utmost attention”. “So I don’t see it as something critical, but the other way around,” explained Scholz.

In its report, Esma complained about a number of deficits, inefficiencies and legal and procedural obstacles at the German financial regulator. For example, she criticized Bafin for the lack of transparency regarding the shareholdings of its employees and saw an increased risk of being influenced by the Ministry of Finance because of the frequency and level of detail of the Bafin reports. Bafin and DPR were accused of missing or not selecting Wirecard reports on time for risk assessment. Their work was also not properly coordinated.

Government wants to draw conclusions from the scandal In early October, shortly before the first meeting of the Wirecard investigation committee set up by the Bundestag, Scholz presented an action plan to the cabinet to draw conclusions from the scandal involving the payment service provider. According to this, the Bafin should in future “be able to act directly and immediately with sovereign powers vis-à-vis capital market companies” and receive a special right to examine all capital market-oriented companies and the possibility of forensic examinations.

In place of the previous two-stage system of balance sheet control, “a more state-sovereign balance sheet control procedure” is to emerge. Overall, the Bafin is to be reorganized. This is to go hand in hand with a strengthening of the supervisory authority’s rights of intervention in investor and consumer protection. In order to avoid operational blindness, auditors, among other things, are to be replaced every ten years.

Esma opened its investigation in July. In June, the then DAX company Wirecard had to admit air bookings of almost 2 billion dollars. It is now in bankruptcy proceedings. Ex-Wirecard boss Markus Braun is now in custody, ex-board member Jan Marsalek is on the run. Frankfurt (Reuters) / (Dow Jones)

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