German Watchdog Faces Wirecard Grilling From Lawmakers

(Bloomberg) -- Germany’s top financial watchdog faces a grilling by lawmakers in Berlin over the regulator’s failure to uncover problems at Wirecard AG before it collapsed in one of the country’s biggest-ever corporate scandals.

BaFin President Felix Hufeld is scheduled to testify behind closed doors to German parliament members at about 11:30 a.m. local time on Wednesday. Given the critical comments made by some lawmakers last week, the hearing may be Hufeld’s toughest since he took the job more than five years ago.

Even with ample warning, German authorities failed to catch accounting issues at the digital-payments company, whose collapse has shaken confidence in the country’s finance industry. While the government is now plugging gaps in its oversight framework, the hearing presents a chance for Hufeld to counter criticism that BaFin sought to protect Wirecard by banning short sales of the stock last year.

The BaFin president acknowledged last week that his institution is among the organizations responsible for the scandal at Wirecard, yet Hufeld defended the short-sale ban as being a legal requirement following indications that the stock’s trading was being manipulated. Sarah Ryglewski, a deputy finance minister, will also be questioned by parliament members.

At the hearing Hans Michelbach, a member of the finance committee from Angela Merkel’s bloc, plans to ask Hufeld why he didn’t inform the committee that BaFin was investigating Wirecard’s accounts during an April 2019 meeting at which the regulator mentioned the company. He’ll also ask why BaFin didn’t take action when it began to suspect that Wirecard was manipulating the market.

German lawmakers have already taken shots at BaFin in the media. Fabio De Masi, deputy leader of anti-capitalist Left party’s parliamentary caucus, questioned whether Hufeld will be able to hang onto his job. Danyal Bayaz, a committee member for the opposition Greens, told Bloomberg that “personnel consequences” -- a euphemism for sackings -- may be required.

Politicians from the ruling parties haven’t gone that far. Alexander Dobrindt, the head of the CSU party caucus in the lower house of parliament, said on Tuesday that lawmakers may begin their own investigation if the Finance Ministry doesn’t clarify BaFin’s role in the Wirecard scandal.

Hufeld, 59, is a lawyer by training and a keen cellist. He’s known as an affable person who speaks plainly about controversial issues. He often starts speeches with cultural references ranging from Rip van Winkle to German TV advertisements from the 1990s.

While BaFin was seen as slow to react, another major issue was the delegation of responsibilities.

Germany is one of relatively few countries to split accounting enforcement between a private-sector watchdog and its markets regulator. This week, the country’s Justice Ministry canceled its contract with the former, while Finance Minister Olaf Scholz said that BaFin needs investigative powers similar to prosecutors.

That would hand more influence to Hufeld, a former banker and insurance industry executive who joined BaFin in 2013. Although he missed out on the soul-searching that followed the 2008 credit crunch, the BaFin president has had a front seat to the resulting seismic shift in the finance industry as one of the key players in shaping the regulatory response.

That won’t make the hearing any easier.

“Any failures have to be laid clearly on the table,” said Matthias Hauer, a lawmaker from the CDU and a member of the finance committee. “We owe it to the savers, staff and investors as well as all the other market participants to prevent a repeat of such a situation.”

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