Germany Regulator Takes More Wirecard Heat as EU Seeks Probe
(Bloomberg) -- German financial watchdog BaFin came under more pressure over apparent failures in its supervision of Wirecard AG, after the European Union’s executive arm called for a probe into how it handled the matter.
The European Commission has asked the bloc’s top markets regulator to investigate the events leading to the collapse of the payments company, as well as the supervisory response, according to a letter seen by Bloomberg. The Commission asked for the initial analysis to be concluded by July 15.
BaFin, along with auditors and other institutions, has come under intense criticism for failing to prevent one of the biggest scandals at a major German company, notably for its decision to ban short-selling Wirecard shares.
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The company’s insolvency filing on Thursday marked the culmination of a stunning accounting scandal that led to the arrest of its former chief executive officer and left the firm unable to locate $2 billion missing from its balance sheet.
The Commission asked the European Securities and Markets Authority to look into “whether the supervisory responses to the alleged improprieties” as well as a report by auditor KPMG in April on Wirecard’s accounts “were adequate to protect investor confidence in EU securities markets,” according to the letter, which is dated June 25.
A BaFin spokeswoman declined to comment.
Felix Hufeld, the head of BaFin, issued an apology on Monday, saying that it was among institutions responsible for the “complete disaster” at Wirecard because it didn’t do a good enough job. Still, he defended his unprecedented ban on short sales of the stock, saying the regulator had to act because it received indications of possible market manipulation.
The U.K.’s Financial Conduct Authority ordered Wirecard’s local unit to stop carrying out regulated activities on Friday and hold off from disposing of assets or funds. The watchdog said it has been working with the Wirecard division and other authorities in recent days to try to protect consumers.
If there were failures in supervision of Wirecard, ESMA should “set out a possible course of action,” Valdis Dombrovskis, EU commissioner for financial services, told the Financial Times in an interview published earlier on Friday.
BaFin took more than a year to report Wirecard for suspected market manipulation after receiving a tip-off from a whistle-blower about irregularities at the payments company in January last year. During that period, regulators from other countries also asked the German watchdog about allegations against Wirecard published by the FT, Bloomberg reported this week.
ESMA was also asked to examine whether there were administrative or legal obstacles to enforcing financial reporting requirements or sanctioning breaches.
German Finance Minister Olaf Scholz called the scandal a “wake-up call that we need more supervision and control of financial markets” on Thursday and promised an overhaul of regulatory structures. The Finance Ministry is examining giving BaFin more powers to “efficiently and quickly” conduct special audits, he said.
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