Wirecard: What is the liability of the financial regulator Bafin?


If Bafin President Felix Hufeld has to answer questions on Wednesday about the Wirecard scandal in front of the Bundestag Finance Committee, everything is for the authority with a double seat in Bonn and Frankfurt. The date in the capital is explosive: Because of the balance sheet scandal about the insolvent payment processor Wirecard and the failure of the supervisory board, especially Bafin. Criticism of the authority has not ceased since Wirecard granted billions of dollars in balance sheet holes and became the first Dax group to ever file for bankruptcy.
The EU has Bafin’s conduct in the Wirecard scandal checked by Europe’s securities regulator ESMA; State Secretary Jörg Kukies has announced that Bafin will expand its area of ​​responsibility. The “German Audit Office” (DPR) is dissolved. The tasks of this “balance sheet police” – which will be activated by the Bafin if irregularities in the balance sheet are suspected – will be assigned to the Bafin from the end of 2021. The Wirecard scandal is also leading to completely new alliances politically: the left and the FDP, otherwise ideologically opposed to each other, are both calling for a committee of inquiry into the role of Bafin.
Since the agency was launched in 2002, there has been controversy about the Federal Financial Supervisory Authority, its tasks and work. The merger of the three predecessor authorities for banks, insurers and securities trading was preceded by the obvious idea of ​​ending the previous confusion of competencies and closing gaps in supervision. Bafin should counter globalization and internationalization of the capital markets with greater clout.

Sometimes it worked – but often it didn’t. The collapse of real estate financier Hypo Real Estate (HRE) hit Bafin cold in 2008. The Munich-based real estate bank had entered into off-balance-sheet risky “credit substitute transactions” through its Ireland branch Depfa, which broke the neck of the Dax group in the financial crisis – the troops of the then Bafin boss Jochen Sanio noticed this far too late. Also because there was a lack of personnel to oversee the internationally interlinked HRE as it would have been appropriate, but also because of internal inefficiencies.

The three most important Bafin business areas – securities, banking and insurance supervision – are based on the predecessor authorities and are managed by their executive directors like small kingdoms. Many employees are demotivated and feel disadvantaged, for example compared to their colleagues at the Bundesbank. They share the banking supervision with them, but hardly anything else: the colleagues at the Bundesbank not only earn more, their public image is also consistently high, even though the European Central Bank (ECB) has taken on most of its tasks.

Small success in this embarrassing scandal

The fact that the Bafin can sometimes be more tiger than a tame kitten is always shown when the personal motivation of individual employees is greater than the frustration with the lack of equipment. As with Frauke Menke, formerly head of department BA 1 (“Supervision of major banks and selected credit banks”). The money laundering specialist drove the grandeur of Deutsche Bank, which was caught up in all sorts of scandals, until it had acquired the reputation of being a godsee in Frankfurt. The relentless, sometimes cutting Menke was present at Supervisory Board meetings of the group to watch the bankers. Her investigative work cost numerous top managers of the bank the job and the institute heavy penalties.

Today Menke is still active in the Bafin, but has disappeared somewhere in the long corridors. For what reasons is unknown, it can not be due to a lack of competence. For this there is Elisabeth Roegele, an executive director for securities trading with a questionable past – as chief lawyer of the fund company Deka, she is said to have campaigned for the reimbursement of taxes from cum-ex deals – and behavior in the Causa Wirecard that requires explanation. Instead of intensively investigating allegations that Wirecard’s management is feeding the markets with false information, she preferred to initiate proceedings against reporters from the British “Financial Times” who reported the grievances. In the end, the DPR balance sheet policemen were also appointed to Wirecard – but this was much too late. And apparently nobody at Bafin was bothered by the fact that the DPR had not submitted the results of the test for more than a year. Hufeld will also have to comment on this in Berlin.
Despite this embarrassing scandal, the Bafin President has had a small success: the dissolution of the “Accounting Police DPR” and the transfer of its tasks to the Bafin. With its mini equipment – an auditor was responsible for following up the shortcomings at Wirecard – the DPR was a bizarre institution from the outset, never up to the task.

But that alone will not be enough, the Bafin has also done too little in the Wirecard case, at least that’s how its critics see it. “The Bafin must carry out a more proactive supervision, which makes full use of possible measures and, if necessary, complains about gaps in politics. This authority must finally be more on the side of consumers and the common good,” says Gerhard Schick. The ex-Bundestag member of the Greens sat for years as an expert on the finance committee and is considered a luminary; today he heads the “Citizens Movement Financial Turnaround”. Schick goes to court with the Bafin in the Wirecard case: “That was a clear failure of supervision, and not for the first time with this authority.”

The Bafin, in turn, has repeatedly pointed out in the past that it could only check the bank subsidiary of the group, because it was only the bank subsidiary and not the entire AG that was under its supervision. Apparently Hufeld has made attempts to change that – whether that was sufficient will now have to be clarified.

Who is responsible for the Wirecard disaster?

Frank Schäffler, who sits on the Finance Committee for the FDP, wants Hufeld and Roegele to be primarily responsible, even if it is too early to ask for resignations. “But from my point of view this week it will become clear whether someone shouldn’t be responsible.”

The dissolution of the DPR in response to the scandal was “ridiculous”. Commissioning the “15-man association” with such important tasks as checking the balance sheets and ultimately only assigning one auditor for Wirecard is a structural defect. “A real stock exchange police must be able to intervene correctly if there is suspicion of manipulating the balance sheet,” says Schaeffler. From his point of view, the Bafin should have followed up much more intensively and ultimately had to pull the matter closer to her when the DPR kept months waiting for results in Wirecard.

In addition, Bafin must be able to supervise payment service providers like Wirecard as a whole. In fact, money laundering supervision in the Wirecard case falls neither in the area of ​​office of Bafin nor in the DPR accounting police – but in that of the district government of Lower Bavaria.

According to Schick, Federal Finance Minister Olaf Scholz is responsible for regulating responsibilities and pushing ahead with the reorganization of Bafin. So far, he has finally touched the Bafin with kid gloves. “Now,” says Schick, “there are no more excuses.”
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