EU investigating German watchdog over Wirecard collapse
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[June 26, 2020]
By Jan Strupczewski and Huw Jones
BRUSSELS/LONDON (Reuters) - The European
Union is investigating Germany's financial regulator over the collapse
of payments company Wirecard in a rare move that heaps embarrassment on
Berlin days before it is due to take over the EU's rotating presidency.
Wirecard's implosion on Thursday, owing creditors almost $4 billion, is
shaping up to be one of Germany’s biggest corporate scandals, and
regulator BaFin has come under fire at home and abroad for not spotting
The European Commission has asked the EU's markets watchdog to assess if
BaFin's responses to allegations of improprieties at Wirecard, which
stretch back years, were adequate to protect investor confidence in EU
markets, according to a letter from the Commission to the EU watchdog.
News of the letter, seen by Reuters, came as the Philippines justice
minister said Wirecard's former operations chief, under suspicion in
Germany over the accounting scandal, was in the Philippines this week,
but had left for China.
Separately, German magazine Der Spiegel reported that Japanese investor
SoftBank <9984.T> was planning to sue Wirecard's long-time auditor EY
over the scandal. EY declined to comment and SoftBank had no immediate
Wirecard, which disclosed a $2.1 billion hole in its books, is the first
member of the DAX <.GDAXI> stock index to go bust, barely two years
after winning a spot among Germany's top 30 listed companies.
EY said the hole in the company's books was the result of a
sophisticated global fraud.
Auditors KPMG said in a review published in April it was unable to
verify 1 billion euros in cash balances, questioned Wirecard's
acquisition accounting and said it could not trace hundreds of millions
of euros in cash advances to merchants.
In its letter to the European Securities and Markets Authority (ESMA),
the European Commission asked ESMA to undertake a "fact-finding
analysis" into BaFin's response to the allegations and report back no
later than July 15.
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The headquarters of Wirecard AG, an independent provider of
outsourcing and white label solutions for electronic payment
transactions is seen in Aschheim near Munich, Germany April 25,
2019. REUTERS/Michael Dalder
It also asked ESMA to assess if there was any evidence of
"administrative or legal obstacles" that hampered the enforcement of
Germany will take the EU's rotating presidency on July 1.
Allegations of financial impropriety have swirled around Wirecard
for years and its implosion has triggered calls for an overhaul of
corporate supervision. BaFin boss Felix Hufeld has described the
scandal as a "total disaster".
BaFin could not immediately be reached for comment on Friday.
ESMA confirmed it had been asked to look at how BaFin enforced the
EU's transparency directive, which covers financial reporting
requirements for listed companies.
EU financial services chief Valdis Dombrovskis could use the
findings from ESMA's analysis to order a formal "breach of union
law" investigation, requiring BaFin to provide information to ESMA.
If a breach is found, BaFin could be ordered by Brussels to make
changes to its practices, an embarrassing situation for a national
Separately, Britain's Financial Conduct Authority (FCA) said on
Friday it had imposed a number of requirements on Wirecard,
including that it must not dispose of any assets or funds, and not
carry out any regulated activities.
Wirecard, which is authorised by the FCA to issue e-money and
provide payment services, must also say on its website that it is no
longer permitted to conduct any regulated activity.
(Additional reporting by Neil Jerome Morales in Manila and Thomas
Seythal in Berlin; Editing by Jason Neely and Mark Potter)
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