EC will not act on BaFin’s Wirecard negligence in 2021
17 February 2021 Belgium
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The European Commission (EC) says it is “carefully assessing” the implications of the Wirecard scandal on the supervision of EU capital markets going forward but does not plan to act on its financial market watchdog’s findings in the near future.
Acting on the request of the commission, the European Securities and Market Authority (ESMA) published a report on German market supervisors’ handling of the Wirecard case in November 2020 which concluded that BaFin and the Financial Reporting Enforcement Panel (FREP) disregarded warning signals from short sellers that the payment processing giant was fraudulent.
In its fast-tracked peer review, ESMA focused on whether EU guidelines on the enforcement of financial information published by listed companies were complied with, meaning it sidestepped the infamous 2019 short selling ban that was enacted by BaFin and endorsed by ESMA at the time.
A commission spokesperson tells SFT: “The report by ESMA is one piece of the puzzle. Investigations by various authorities in Germany are still ongoing.”
The spokesperson says the EC “will take stock of what has been achieved by the end of 2021, and consider proposing measures for stronger supervisory coordination or direct supervision by the European supervisory authorities”.
The spokesperson stresses that the onus for effective supervision of individual European markets lies with the relevant national competent authority and “market discipline, confidence and investor protection depend to a large extent on supervisors performing effective oversight of the activities of market players and listed companies”.
“We must ensure that in the future cases like Wirecard are detected and addressed at an early stage anywhere in Europe,” the spokesperson adds.
BaFin was unable to respond to questions on the type and scale of internal audits it was currently conducting related to the handling of Wirecard.
The EC additionally says that, under the Capital Markets Union Action Plan of 24 September, it will work towards an enhanced single rulebook for capital markets to assess the need for further harmonisation of EU rules and to monitor the progress towards supervisory convergence.
Elsewhere, ESMA’s '2021 work programme' outlines ambitions to address concerns around market integrity through an assessment of the Short Selling Regulation (SSR), under which the Wirecard shorting ban was enacted, and the Market Abuse Regulation.
ESMA states it may also "take advantage of the lessons learnt in 2020” concerning short selling bans and related emergency measures after the COVID-19 outbreak and re-consider some aspects of the SSR framework at its own initiative.
However, an ESMA spokesperson tells SFT that although the authority can make suggestions on regulatory amendments, the provision of technical advice is only offered at the request of the commission.
Questions the commission may wish to ask include whether the unprecedented suppression of short activity into a highly-suspect tech firm was, in hindsight, a misstep by BaFin and ESMA.
Recent reports by the Financial Times suggest that BaFin was “selective” in the evidence it presented to ESMA when it requested the ban, and omitted several factors that would likely undermine its case.
When ESMA receives a request to endorse a ban, it has 24 hours to respond and does not have any powers to review or query the evidence it is given by a national regulator.
Now read: Who watches the watchman?
Acting on the request of the commission, the European Securities and Market Authority (ESMA) published a report on German market supervisors’ handling of the Wirecard case in November 2020 which concluded that BaFin and the Financial Reporting Enforcement Panel (FREP) disregarded warning signals from short sellers that the payment processing giant was fraudulent.
In its fast-tracked peer review, ESMA focused on whether EU guidelines on the enforcement of financial information published by listed companies were complied with, meaning it sidestepped the infamous 2019 short selling ban that was enacted by BaFin and endorsed by ESMA at the time.
A commission spokesperson tells SFT: “The report by ESMA is one piece of the puzzle. Investigations by various authorities in Germany are still ongoing.”
The spokesperson says the EC “will take stock of what has been achieved by the end of 2021, and consider proposing measures for stronger supervisory coordination or direct supervision by the European supervisory authorities”.
The spokesperson stresses that the onus for effective supervision of individual European markets lies with the relevant national competent authority and “market discipline, confidence and investor protection depend to a large extent on supervisors performing effective oversight of the activities of market players and listed companies”.
“We must ensure that in the future cases like Wirecard are detected and addressed at an early stage anywhere in Europe,” the spokesperson adds.
BaFin was unable to respond to questions on the type and scale of internal audits it was currently conducting related to the handling of Wirecard.
The EC additionally says that, under the Capital Markets Union Action Plan of 24 September, it will work towards an enhanced single rulebook for capital markets to assess the need for further harmonisation of EU rules and to monitor the progress towards supervisory convergence.
Elsewhere, ESMA’s '2021 work programme' outlines ambitions to address concerns around market integrity through an assessment of the Short Selling Regulation (SSR), under which the Wirecard shorting ban was enacted, and the Market Abuse Regulation.
ESMA states it may also "take advantage of the lessons learnt in 2020” concerning short selling bans and related emergency measures after the COVID-19 outbreak and re-consider some aspects of the SSR framework at its own initiative.
However, an ESMA spokesperson tells SFT that although the authority can make suggestions on regulatory amendments, the provision of technical advice is only offered at the request of the commission.
Questions the commission may wish to ask include whether the unprecedented suppression of short activity into a highly-suspect tech firm was, in hindsight, a misstep by BaFin and ESMA.
Recent reports by the Financial Times suggest that BaFin was “selective” in the evidence it presented to ESMA when it requested the ban, and omitted several factors that would likely undermine its case.
When ESMA receives a request to endorse a ban, it has 24 hours to respond and does not have any powers to review or query the evidence it is given by a national regulator.
Now read: Who watches the watchman?
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