The head of Germany’s financial watchdog denied that the regulator had protected Wirecard instead of investigating it properly, as MPs in Berlin grilled him on the agency’s role in one of the country’s worst-ever corporate scandals.
Felix Hufeld, head of BaFin, told members of the Bundestag on Wednesday that the agency’s ability to act was limited because Wirecard was classified as a technology company rather than a financial services provider, and so was not fully under BaFin’s purview. The agency only oversaw Wirecard Bank.
Mr Hufeld told lawmakers in a closed-door session of the Bundestag’s finance committee that BaFin, the ECB and the Bundesbank had all been in agreement that Wirecard should not be categorised as a financial holding, according to his spokeswoman.
“Though he expressed regret at what happened with Wirecard, he denied that BaFin could have done more than it did,” said Florian Toncar, an opposition MP from the liberal Free Democrats, who attended the meeting.
Lisa Paus, finance policy spokeswoman for the Greens, who was also present, said BaFin “needs to fully analyse its mistakes and then have a fresh start”. “It’s still an open question as to whether that can succeed with Mr Hufeld at [its] helm,” she added.
The collapse of Wirecard, until recently the flagship of Germany’s burgeoning fintech sector, has stunned the country’s political elite and raised far-reaching questions about the state of financial regulation in the eurozone’s largest economy.
The company filed for insolvency last week — the first such filing by a member of Germany’s blue-chip Dax index since it was founded 32 years ago.
The move came days after it admitted that €1.9bn of cash was missing, and Markus Braun, its former chief executive, was arrested on suspicion of false accounting and market manipulation. Mr Braun, who denies wrongdoing, was later released on bail.
BaFin’s actions in 2019 as the Wirecard scandal began to gather steam have attracted mounting scrutiny — especially its decision to impose a two-month ban on short selling the company’s shares and to file a criminal complaint against two FT reporters who wrote about whistleblower allegations of accounting fraud in Wirecard’s subsidiary in Singapore.
Mr Hufeld denied that BaFin had sought to protect the payments company, saying its duty was to “safeguard the integrity of the market”, according to one participant at the meeting. He said there had been indications of criminal behaviour on the part of some investors who were short selling Wirecard’s shares before the FT’s reports came out, and said BaFin would not shrink from imposing such a short selling ban in the future.
People at the meeting said Mr Hufeld complained in forthright terms about the criticism he has faced since Wirecard collapsed, and the lack of political cover BaFin has received from the authorities in Berlin.
“He showed very little humility, and basically denied there had been a failure of oversight,” said Fabio De Masi, an MP for the hard-left Die Linke party, who was present. “My feeling is that he isn’t the right person to reorganise the system of financial regulation in Germany.”
Others said Mr Hufeld still had a chance to salvage his reputation. “He has to put forward proposals as to how the regulator can be improved,” said Mr Toncar. “Whatever happens, a return to business as usual is not an option.”
Last week, the European Commission said it would ask the EU’s top markets supervisor, the European Securities and Markets Authority (Esma) to assess BaFin’s handling of the Wirecard affair.
Valdis Dombrovskis, commission vice-president, told the Financial Times the EU should pursue a formal investigation into BaFin for “breach of union law” if the preliminary probe by Esma discovered shortcomings in the German regulator’s actions.
But Mr Hufeld said Esma had “no right” to carry out such a probe, according to one participant at the meeting, and described a potential investigation as “politically motivated”.
Scrambling to contain the fallout from the Wirecard affair, the German government this week terminated its contract with the country’s accounting watchdog, the Financial Reporting Enforcement Panel (FREP), as it moved to overhaul its accounting enforcement system.
Germany currently splits enforcement between FREP, a private-sector body, and BaFin. Mr Hufeld acknowledged that this two-tiered system had “structural deficits”, according to a participant in the meeting: it functioned well in normal circumstances but had failed in a crisis.
FREP on Wednesday evening defended itself against mounting criticism of its probe into Wirecard. “At no point in time were there any flaws in the auditing procedure, and the communication with BaFin was always strictly in line with the [official] guidelines,” the body said in a press release. FREP pointed out that it neither had the remit nor the resources to uncover fraud.
The BaFin chief declined to comment on the work of EY, the Big Four accountancy firm, which audited Wirecard’s accounts for a decade and has come under sustained criticism for failing to identify problems at the company. Mr Hufeld said it was not his role to assess the performance of EY, or APAS, the German body that oversees auditors.
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