Featured Product

    ESMA Identifies Supervisory Deficiencies in Wirecard Reporting Case

    November 03, 2020

    ESMA published the results of its fast-track peer review, which assessed the events leading to the collapse of Wirecard AG and the supervisory response by BaFin and the Financial Reporting Enforcement Panel (FREP). The peer review identifies a number of deficiencies, inefficiencies, and legal and procedural impediments. These concern the independence of BaFin from issuers and government, market monitoring by both BaFin and FREP, examination procedures of FREP, and effectiveness of supervisory system in the area of financial reporting. The review also provides recommendations to address these shortcomings.

    The peer review focuses on the application by BaFin and FREP of the Guidelines on Enforcement of Financial Information (GLEFI) and on impediments to the effectiveness of the German two-tier supervisory system for financial reporting in the context of the Wirecard case. ESMA identified deficiencies in the application of the GLEFI in the Wirecard case in the following areas:

    • Independence of BaFin from issuers and government—BaFin lacks information about employees’ shareholdings. This raises doubts on the robustness of internal control system of BaFin regarding conflicts of interest of its employees vis-à-vis issuers. For BaFin, there is a heightened risk of influence by the Ministry of Finance given the frequency and detail of reporting by BaFin, sometimes before actions were taken. The Peer Review Committee recommends that BaFin should introduce a robust control framework to address the circumstances in which a conflict of interest could arise. The Peer Review Committee recommends that BaFin should introduce stricter limitations to the detail and frequency of reporting to the Ministry of Finance in the context of ongoing examinations. 
    • Market monitoring by both BaFin and FREP—Non-selection (or non-timely selection) of Wirecard’s financial reports for examination based on risks in the period between 2016 and 2018. 
    • FREP’s examination procedures of Wirecard financial reports—The scope of the examinations did not appropriately address areas material to the business of Wirecard, nor the media and whistleblowing allegations against Wirecard. The analyses performed (level of professional skepticism, timeliness of examination procedures, assessment of disclosures) and their documentation were insufficient. The Peer Review Committee recommends that, when establishing the risk factors to be considered to identify abstract risks, FREP should consider, more prominently, indicators of the potential impact of an infringement on financial markets.
    • Effectiveness of the supervisory system in the area of financial reporting—Regarding the respective roles of BaFin and FREP in the case of (indications of) fraud in financial reporting, BaFin and FREP are not aligned in the perception of each other’s role and the limitations and possibilities that both have in the context of the two-tier system. BaFin was not put in the position to thoroughly assess FREP’s examinations of Wirecard, which would have enabled BaFin to determine whether it should take over the examinations from FREP. The strong confidentiality regime, by which both institutions are bound, may have hindered the exchange of relevant information between them and with other relevant bodies. Instances of lack of coordination and inefficiency in exchange of information between relevant teams in BaFin.

    On June 22, 2020, Wirecard announced that EUR 1.9 billion were missing, which it claimed to hold in escrow accounts. In view of allegations of fraud, questions were raised about the roles of BaFin and FREP in taking timely action in this case. The report was prepared in response to a request received from EC on June 25, inviting ESMA to conduct a fact-finding analysis of the events leading up to the collapse of Wirecard AG. This is the first peer review conducted by ESMA under the revised ESMA Regulation and the new Peer Review Methodology, in the form of a Fast Track procedure and focusing on only one jurisdiction and one issuer.

     

    Related Links

    Keywords: Europe, Germany, Banking, Securities, Peer Review, Wirecard, Financial Reporting, FREP, BaFin, EC, ESMA

    Related Articles
    News

    APRA Finalizes Guidance on Management of Climate Change Risks

    The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.

    November 26, 2021 WebPage Regulatory News
    News

    European Council Adopts Position on Digital Finance Package Proposals

    The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).

    November 25, 2021 WebPage Regulatory News
    News

    PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window

    The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.

    November 25, 2021 WebPage Regulatory News
    News

    EC Proposes New Measures Under Capital Markets Union Package

    The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.

    November 25, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR

    The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).

    November 24, 2021 WebPage Regulatory News
    News

    FED Outlines Lending Conditions and Supervisory Activities in H1 2021

    The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.

    November 24, 2021 WebPage Regulatory News
    News

    APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience

    The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.

    November 23, 2021 WebPage Regulatory News
    News

    FSB Updates List of Global Systemically Important Banks

    The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.

    November 23, 2021 WebPage Regulatory News
    News

    FASB Proposes Improvements to Credit Losses Standard

    The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.

    November 23, 2021 WebPage Regulatory News
    News

    US Agencies Issue Statement on Crypto-Asset Policy Initiatives

    US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.

    November 23, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7733