German watchdog under fire as Wirecard files for insolvency

By Sunniva Kolostyak

Wirecard has filed for insolvency one week after the reveal of a €1.9 billion hole in its cash accounts – a wake-up call for regulators in Germany, according to Finance Minister Olaf Scholz.

The collapse of the payments FinTech has left creditors being owed almost $4 billion.

According to a Reuters report, the German Finance Minister described the implosion as a scandal and a wake-up call for supervision. He added he had asked his ministry in the coming days to come up with some ideas.

“If legal, legislative, regulatory measures are needed, we will embrace them and implement them,” Scholz said. “A scandal like Wirecard is a wake-up call that we need more monitoring and oversight than we have today.”

The European Commission has also asked its markets watchdog to investigate the German financial regulator BaFin over the collapse.

Valdis Dombrovskis, the EU’s executive vice-president in charge of financial services policy, told the FT that he was writing to the European Securities and Markets Authority (ESMA).

He said the EU should be prepared to pursue a formal investigation into the German regulator for “breach of union law” if the preliminary probe by ESMA discovered shortcomings in BaFin’s upholding of EU rules on financial reporting.

“We will be asking Esma to investigate whether there have been supervisory failures and if so to set out a possible course of action,” Dombrovskis told the newspaper. “We need to clarify what went wrong.” He will set a mid-July deadline for Esma to reply.

Since EY revealed what it called a result of sophisticated global fraud, Wirecard has lost 90 per cent of its value.

According to German magazine Der Spiegel, SoftBank is planning to sue EY over its role in the scandal, citing sources close to the Japanese company, which invested in Wirecard last year.

Earlier this week, former CEO Marcus Braun was arrested suspicion of falsifying its accounts, Munich prosecutors said. A judge ruled that he could be released if he posts €5 million in bail. Former COO and board member Jan Marsalek, also under suspicion, has according to Manila’s justice minister briefly visited the Philippines this week. However, he left the country on Wednesday headed for China.