ESMA Criticizes BaFin for Failures in Wirecard Scandal

EU watchdog ESMA has criticized Germany's regulator BaFin for what it described as “deficiencies, inefficiencies and legal and procedural impediments” in the Wirecard scandal

November 3, 2020 | AtoZ Markets – European Union’s top markets watchdog has taken issue with how Germany’s financial regulator (BaFin) has handled the Wirecard sandal.

As a reminder, Wirecard AG was once the toast of the German fintech scene. However, the payment company filed for insolvency earlier this year after facing a huge accounting scandal and subsequently failing to make payments on $1.5 billion in loans coming due.

ESMA criticized BaFin's handling of Wirecard scandal

In a report published on Tuesday, the European Securities and Markets Authority (ESMA) identified a number of “deficiencies” at BaFin, including that the financial supervisor did not maintain enough independence from the country’s Ministry of Finance, which "heightened risk of influence by the Ministry of Finance.”

It also accused BaFin and Germany’s Financial Reporting Enforcement Panel, (FREP) of ignoring red flags over concerns raised about the accounting practices at the fintech firm for some years.

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“FREP did not pick up signals in the international media and failed to select Wirecard for examination in the period between 2016 and 2018,” the ESMA report said, adding that BaFin also had not requested FREP to take a closer look during that period either.

“Today’s report identifies deficiencies in the supervision and enforcement of Wirecard's financial reporting,” ESMA chairman Steven Maijoor said.

Former Wirecard CFO released on bail

The president of BaFin, Felix Hufeld said in September 2020 that he would step down from his post over the scandal.

Yesterday, November 2, Wirecard's ex-CFO Burkhard Ley, who held the role for more than a decade, has been released on bail after spending more than three months in police custody. Munich prosecutors said that most of the fraud took place after 2017 when Ley had already left the company’s management board.

However, Markus Braun, the former chief executive is still in custody, having been detained again in June after his initial arrest. Despite an ongoing Interpol search, former COO Jan Marsalek is still at large. According to a report last week by the Süddeutsche Zeitung, there are suspicions that Austria-born Marsalek may have been a spy for the Austrian intelligence service.

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