Wirecard Is a Humiliation for Germany #NewsGerman

(Bloomberg Opinion) — The scandal at Wirecard AG hasn’t just exposed a multi-billion dollar hole in the accounts of one of Germany’s most hyped fintech companies. It has also revealed a void at the heart of the country’s regulatory regime.

Angela Merkel’s government needs to ask itself some tough questions about the effectiveness of BaFin as a watchdog for its financial markets, including whether it should continue in its present form. But this is a European problem too.

The supervisory failures are so bad that the European Union is complaining about the possible damage to its own reputation as a safe place to invest. Brussels will rightly open an investigation into the Wirecard fiasco. One hopes that this will accelerate the process toward a stronger pan-European regulatory body that might overcome the tendency for national supervisors to go easy on their domestic companies.

The European Securities Markets Authority, the EU’s market regulator, needs to be given a central role in governing the continent’s companies, as has already happened with the European Central Bank’s oversight of banking. The ECB hasn’t been a perfect supervisor: It could have put more pressure on Deutsche Bank AG, Germany’s struggling flagship lender. But it has done a better job than BaFin, which failed to adequately monitor the German banking system before the financial crisis.

Wirecard’s collapse is certainly a humiliation for Germany’s supervisors. A number of short sellers, and a group of Financial Times journalists, have for years been reporting disturbing facts about the company and, in particular, the reliability of its accounts. BaFin failed to follow up speedily on their work, despite receiving tips from a whistleblower and complaints from other regulatory authorities. Instead, it pointed the finger the other way: banning the short selling of Wirecard stock temporarily and opening an investigation into the FT’s reporters.

Even after the company admitted that it couldn’t locate 1.9 billion euros ($2.1 billion) of cash, the German establishment was slow to acknowledge the gravity of the situation. Felix Hufeld, the head of BaFin, issued an apology, but he also said Wirecard was considered a technology company rather than a financial institution — a bizarre attempt to defect blame given that Wirecard owned its own bank. Olaf Scholz, Germany’s finance minister, initially said that “the supervisory institutions worked very hard and they did their job.” He has since changed tack, demanding a rethink of Germany’s regulatory structure.

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