Wirecard Scandal a ‘Complete Disaster,’ Says Germany’s Bafin
Wirecard Scandal a ‘Complete Disaster,’ Says German Regulator
(Bloomberg) -- Germany’s top financial regulator gave a scathing assessment of the failings that led to the scandal at payments processor Wirecard AG, including how his own institution handled allegations of irregularities at the fintech where more than $2 billion of assets went missing.
“It’s a complete disaster we’re looking at,” Felix Hufeld, head of financial regulator Bafin, said Monday on a panel discussion. “It’s a shame that something like that happened.”
“It starts with looking at complete failure of a senior management, despite many, many hints to discover the facts,” he said. “It goes on to the scores of auditors who couldn’t dig up the truth and it goes on with a whole range of private and public entities including my own who have not been effective enough to prevent something like that happening.”
Bafin has come under criticism after it responded to the allegations in the Financial Times last year by temporarily banning short selling of Wirecard, a step it had never taken for an individual company. The German regulator also investigated possible market manipulation by short sellers and journalists, and whether Wirecard failed to meet its disclosure obligations. The newspaper had alleged fraud at a unit of Wirecard.
German Finance Minister Olaf Scholz voiced his support for Bafin, saying in a video link-up at the conference that the supervisory institutions had worked hard and done their job.
Wirecard on Monday announced that 1.9 billion euros ($2.1 billion) that it had reported as assets probably don’t exist, deepening a scandal that has wiped out more than 80% of its market value in three trading days. The company is in discussions with creditors and considering a full-scale restructuring to survive, after pulling its financial results for fiscal 2019 and the first quarter of 2020. Previous descriptions of its business with third parties, which process transactions on Wirecard’s behalf, were “not correct.”
Still, Hufeld defended the ban on short sales, saying the law was clear in that respect. Bafin had to act after receiving indications from German prosecutors that there were signs of “manipulative behavior” potentially including insider trading, he said. The regulator also said that, as a technology company, Wirecard wasn’t considered a financial institution directly supervised by Bafin.
‘Serious Issue’
On the same panel, Deutsche Bank AG Chief Executive Officer Christian Sewing said he agreed with Hufeld. He added that the case of Wirecard presents a “serious issue” for the shareholder culture in Germany, a country where many retail investors have traditionally shied away from equities.
“I salute those, let it be journalists, analysts or yes, let it be short sellers, who have been digging out inconsistencies persistently and rigorously,” Hufeld said. “We don’t know the facts today, nobody knows the right facts today, including those who asked the right questions.”
Hufeld said he doesn’t see a need for a wholesale change in regulation as a consequence of events at Wirecard. Still, BaFin should later review “a couple strategies and measures which we have taken or not taken. Right now we’re in crisis mode.”
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