Germany to Expand Financial Watchdog’s Powers After Wirecard

Germany wants to bolster the expertise at its top financial regulator to prevent a repeat of the Wirecard scandal that exposed significant cracks in the country’s oversight.

The watchdog known as BaFin plans to hire more highly-qualified professionals and build a taskforce to carry out forensic probes and investigate potential accounting fraud on its own, Deputy Finance Minister Joerg Kukies said on Tuesday. In the past, BaFin has farmed out accounting investigations to a separate regulator.

It will also create a contact group to act on information from journalists, analysts and short sellers in cases of suspicious market activity.

“We want a stronger, proactive supervisor with more teeth,” Kukies said.

The announcement came less than a week after BaFin President Felix Hufeld and his deputy resigned from the watchdog. BaFin has come under increased scrutiny since the collapse of Wirecard highlighted the watchdog’s failure to prevent the country’s biggest corporate debacle in living memory. As part of the reorganization, a new president will take over at the end of March with a remit to make the agency more efficient, a government official said.

Finance Minister Olaf Scholz stressed the need to hire a successor with global expertise who can turn BaFin into a world-class supervisor. “We need to be able to compare ourselves with the very best,” he said at a briefing on Tuesday.

BaFin’s action plan:
  • Recruit more financial-services experts
  • Set up a taskforce to initiate forensic investigations
  • Create a contact group to collect intel from journalists, analysts, short sellers
  • Hire a president with global expertise

This is the second set of government measures designed to regain trust in Germany’s financial supervision. Last year, Chancellor Angela Merkel’s government bolstered BaFin’s powers to intervene directly with banks, insurers and payment companies under its supervision as part of “Wirecard Action Plan.”

Hufeld had come under increasing pressure after repeated details of BaFin’s deficiencies emerged. Most recently, the regulator discovered a case of suspected insider trading in Wirecard securities by a member of its own staff. That appeared to be the final blow for Hufeld.

The scandal has already resulted in the resignation of Germany’s top auditing regulator, who told lawmakers that he traded Wirecard shares while his agency was reviewing the company’s external audits. For its part, BaFin said in October that its staff will no longer be permitted to trade securities of companies it supervises.

Wirecard Chief Executive Officer Markus Braun was arrested last year and has been in a jail near Munich since. His second in command is a fugitive.

Read more:
Germany’s Top Finance Watchdogs Resign Over Wirecard Scandal
German Watchdog Had Plenty of Chances to Dig Into Wirecard Fraud
Insider Trade Suspicion Draws BaFin Deeper Into Wirecard Scandal
Germany Unveils Plans to Prevent Another Wirecard Debacle

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