Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The German financial watchdog that was criticised for badly mishandling one of Europe’s biggest accounting frauds said it has become much more active and “willing to step on toes” in the five years since Wirecard collapsed.
“We didn’t meet all the expectations placed on a supervisor,” said Mark Branson, the head of BaFin who joined from Swiss regulator Finma in 2021, a year after the payments group collapsed in June 2020. But, he added in an interview with the Financial Times, the regulator had changed and was now a “more active, bolder institution”.
BaFin in 2019 banned short selling of Wirecard shares in a move interpreted as a vote of confidence in the company. It also filed a criminal complaint against two Financial Times journalists who reported on suspected accounting fraud.
Just over a year later, Wirecard collapsed into insolvency after disclosing that half of its revenue and €1.9bn in cash did not exist.
Branson said BaFin had sent “mixed signals into the market” about Wirecard, adding this had been “unfortunate and didn’t help clarify what was really going on”.
“We are talking today with the benefit of hindsight, about an unclear situation with conflicting information. That said, broadly speaking, your institution [the FT] got it right; ours got it wrong.”
He acknowledged that the Wirecard scandal had done serious damage to trust in German capital markets. But it had also led to a regulatory overhaul that gave BaFin more powers to supervise companies and to more structured handling of information and whistleblowers.
London-based short seller Matthew Earl, who co-wrote a 2016 report outlining suspicious activity at Wirecard, told a parliamentary inquiry that BaFin was not interested when he called its whistleblower hotline.
The regulator also gave the European Securities and Markets Authority selective and incomplete information when it made its case for the ban on shorting Wirecard shares.
“I’m confident that, faced with something similar, we would react differently”, Branson said, adding: “Our ambition is to be a world-class supervisor.”
In the past four years, BaFin has sent special monitors into German businesses from Deutsche Bank to fintech Solaris, issued millions of euros in fines, and imposed unprecedented restrictions on client numbers at online-only bank N26.
It has also become more willing to publish details of individual corporate wrongdoing and its response, said Branson.
He insisted BaFin had not become overzealous. “The institutions that have problems with us are problematic institutions,” he said. The regulator’s approach these days was “not just about being stricter, but about stepping on the right toes at the right time”.
BaFin’s top priorities now include cryptocurrencies and stablecoins — digital currencies backed often by the dollar.
Branson pointed to its recent decision to deny a licence to stablecoin Ethena after finding “serious deficiencies” in the company’s business organisation as well as “infringements” of regulatory requirements.
“When I talk about that with our international colleagues, there’s nobody who’s further ahead of the curve,” he said of BaFin’s approach to stablecoin supervision.
Branson also said the regulator was prepared to axe “unnecessary” red tape that “doesn’t support supervisory goals”. He singled out reporting and compliance requirements being the same for smaller and larger banks.
“We’re not shy of telling both the German and European legislators where there are things that we think are no longer necessary.” But he was also adamant that there should be no cuts to capital or liquidity requirements for smaller banks.
“This is about smarter regulation, not deregulation.”