LONDON: Germany’s financial regulator has received a Wirecard-sized wake-up call. The payments company has long faced allegations of fraud, but until recently the Federal Financial Supervisory Authority (BaFin) had focused on probing short-sellers and investigative journalists.
Wirecard’s ownership of a regulated German bank adds to doubts about financial supervision in Europe’s largest economy.
The Bavaria-based fintech company on Monday confirmed what many of its critics have long alleged: that €1.9 bil (RM9.09 bil) of cash in trust accounts probably does not exist.
Wirecard has been grappling with accusations made by whistle-blowers, reported by the Financial Times and others, for the past 18 months.
Yet BaFin’s first response was to go after the messengers. In February 2019, the regulator banned short-selling in Wirecard stock and then filed a criminal complaint against FT journalists and some short-sellers alleging market manipulation. Its justification of “protecting market confidence” now looks tragicomic.
It’s true that BaFin – whose remit includes supervising financial institutions and maintaining broader market integrity – does not have direct oversight of Wirecard group.
However, it was responsible for regulating the company’s German banking unit, which has €1.7 bil in deposits. It also authorises the members of the lender’s management board, which include Wirecard Finance Director Alexander von Knoop.
It’s not the first time BaFin has appeared slow to clamp down on possible financial malfeasance. Over the past decade, Deutsche Bank has been beset by scandals, including US$10 bil (RM42.69 bil) in sham Russian trades and a correspondent relationship with Denmark’s Danske Bank, which facilitated billions of euros in suspicious payments.
Yet it was not until late 2018 that BaFin appointed a special representative for money-laundering prevention at Germany’s largest lender.
BaFin defended its actions against Wirecard short-sellers saying it had reliable information of coordinated attacks against the company. It reported these suspicions to prosecutors who were ultimately responsible for investigating the evidence.
Still, this hardly excuses its lack of curiosity about the much larger market manipulation which appears to have occurred under its nose.
German Finance Minister Olaf Scholz on Monday implied he was satisfied with the way supervisors “did their job” with respect to Wirecard.
Excluding the possibility of a misguided attempt at droll humour, that will only compound a general impression of the weakness of German financial regulation.
And it will do little to help Frankfurt’s efforts to lure financial institutions away from post-Brexit London. – June 22, 2020, Reuters
