Wirecard Has Under-Pressure Financial Watchdog Chasing Answers

(Bloomberg) -- Germany’s top financial watchdog said authorities have yet to uncover the extent of deception at Wirecard AGas the fallout from one of the country’s biggest corporate scandals leads to fresh calls for regulatory reform.

“What we have to dig out now is who actually deceived whom? Who are the bad guys, who are the good guys and who were just not up to the challenge” Felix Hufeld president of regulator BaFin said at a conference.

Wirecard’s shock announcement last month that a quarter of its balance sheet probably doesn’t exist has undermined Germany’s reputation as a place to do business and set off a blame game among authorities who failed to catch the irregularities. Hufeld has acknowledged that BaFin is among the institutions that fell short.

“It’s an example about how massive fraud and an enormous level of criminal energy to deceive and actually falsify direct account documentation have created a real fallout,” Hufeld said.

German politicians have criticized BaFin and the country’s accounting enforcement watchdog for not uncovering the scandal.

“There have to be people at the financial supervisor who can recognize problems,” Danyal Bayaz, a lawmaker with the opposition Green party, said in parliament on Thursday in Berlin. “We need people who can think in terms of criminology. Otherwise the supervisors will always be playing catch-up.”

Hufeld also acknowledged the need to improve oversight of corporate balance sheets.

Germany is one of relatively few countries to split accounting enforcement between a private-sector watchdog and the 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.

The accounting watchdog, known as FREP, says it met obligations in its examination of Wirecard.

“A case like this can never be allowed to be repeated in Germany,” Matthias Hauer, a member of Chancellor Angela Merkel’s Christian Democrats, said in parliament on Thursday. “We expect it to be thoroughly cleared up.”

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