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In a new report on the German Financial Supervisory Authority's (BaFin) progress since the Wirecard scandal, the European Securities and Markets Authority (ESMA) says it is broadly satisfied with the changes that have been made.
The EU regulator has released its Follow-Up Report to the Wirecard Fast Track Peer Review (FTPR), assessing the progress made in response to recommendations formulated in 2020.
The follow-up report indicates significant reforms, particularly in BaFin’s operations, which now encompass all financial information supervisory activities following the disbandment of the two-tier enforcement system.
The initial review was prompted by the June 2020 collapse of fintech company Wirecard, which had been included in Germany's prestigious DAX 30 index.
The situation triggered shockwaves in Germany and abroad, and called into question the effectiveness of Germany’s regulatory approach.
The scandal claimed the scalps of former BaFin president Felix Hufield and his deputy Elisabeth Roegele. Former Wirecard CEO Markus Braun is currently on trial, while chief operating officer Jan Marselek is a fugitive facing allegations of spying for Russia.
Wirecard, once a national champion, faced widespread criticism across Germany and the EU following the scandal.
German politicians criticised current Chancellor Olaf Scholz for mishandling oversight of the company and his predecessor, Angela Merkel, for her perceived naivety regarding lobbying.
In November 2020, ESMA published the original FTPR, which scrutinised the supervisory practices of BaFin and the FREP (Financial Reporting Enforcement Panel). The review highlighted several deficiencies in their oversight of Wirecard's financial reporting.
A comprehensive framework
ESMA’s evaluation focused on multiple aspects, including BaFin's independence from issuers and the government, market monitoring, examination procedures and inter-agency cooperation.
According to ESMA, BaFin has implemented a comprehensive framework to regulate staff financial holdings and transactions, with strict prohibitions and mandatory declarations, according to the report.
Although it lacks full authority to audit staff holdings, these measures are a positive step, and ESMA has also welcomed the fact that BaFin’s relationship with the country’s Ministry of Finance has been formalised to ensure operational independence.
However, it warns that some areas remain vulnerable to influence.
Meanwhile, BaFin has significantly enhanced its market monitoring and media analysis capabilities within its enforcement of financial information (EFI) directorate.
A new selection model, utilising a combination of internal and external information sources, has been introduced and is expected to be fully operational by 2024.
BaFin has also improved mechanisms for handling whistleblower information and expanded its investigative powers, allowing for forensic investigations and the publicising of enforcement proceedings.
According to the report, the agency now has increased rights to request information from relevant parties and perform searches and seizures.
Meanwhile, BaFin and the Audit Oversight Body (AOB), along with other institutions, are now authorised to exchange information freely, and it has created a dedicated division for coordination and appointed single points of contact to enhance communication within the organisation and with external bodies.
Further, the regulator has removed legal barriers that previously hindered full compliance with ESMA’s Guidelines on Enforcement of Financial Information (GLEFI), and declared full compliance as of January 2022.
“The revised supervisory framework seems to address the recommendations set in the FTPR but will have to be fully and effectively implemented,” ESMA said in the report.
When approached by Vixio for comment, a spokesperson for BaFin said that the regulator welcomes ESMA's report "as a good indicator of the organisational reforms that have already been implemented".
"We will continue to improve our processes and modernise BaFin on an ongoing basis," the regulator said.
Meanwhile, a spokesperson for Germany's Ministry of Finance told Vixio that the report is a "good indicator of the organisational reforms already implemented by BaFin".
"The ministry supports the continuous improvement of processes and the modernisation of BaFin."
