The Wirecard case shook Germany so badly that the earthquake can still be felt two years after the payment service provider went under. In the judiciary, which is preparing a trial in Munich, in the security authorities, who are said to be unaware of former board member Jan Marsalek’s contacts in Russia – and in the financial supervisory authority Bafin, which failed to investigate the suspected fraud at an early stage. In an effort to limit damage, the former federal government under ex-Finance Minister Olaf Scholz (SPD) designed a Bafin reform that is now clearly bearing fruit.
The authority has taken on the real estate group Adler, more precisely: with its probably most important German subsidiary. This accounted for a large construction project in Düsseldorf incorrectly, valued it far too high, which is why the 2019 annual financial statements were incorrect, the supervisors reported this week. Captioned: We’re far from done examining the company’s balance sheets. At the same time, this is evidence of new competences in supervision and evidence of a new style with which the authority publicly counts individual companies for trickery.
Finally, one must say. For too long, politics has been dominated by the model of a secretive, sluggish financial regulator that prefers not to disrupt the business of listed corporations too much and, above all, not to reveal too much about its measures. That could have a damaging effect on business or provoke administrative lawsuits.
So far, a control prevention system
For too long, investors in German stock corporations had to rely solely on the judgment of the auditors. The German Financial Reporting Enforcement Panel (DPR), a privately organized association that has now been incorporated into the Bafin, went to work as a petitioner to the companies on behalf of the supervisory authority when there were doubts about a balance sheet: The procedures took too long, the Bafin usually only acted after the verdict the FREP auditor and did not say a word about these events. This structure not only seems absurd in retrospect, it was a state-organized balance sheet control prevention system.
In an interview with the SZ, financial supervisor Mark Branson said he was negatively surprised at how little the Bafin acted as a single authority.
(Photo: Maurice Kohl)
So now the Bafin has a lot of new examiners, now they already publish it as soon as they start an examination. Germany now has an additional state authority to protect the integrity of the capital markets. The risk of being discovered with trickery on the balance sheet is much higher, with a corresponding general preventive effect: No managing director of a listed company can want to get caught in the clutches of the supervisory authority.
So there are these two elements that reinforce each other in their effect: the Bafin is allowed to do more and thus exerts more pressure and communicates more. The request of the new authority head Mark Branson to create a bolder and more transparent oversight is becoming visible, and it is absolutely right. Starting with the financial crisis, embedded in EU-wide reforms and shaken up by the Wirecard scandal, Germany has a more powerful financial regulator that has slept through too much over the years: the cum-ex affair about tax-damaging stock deals, money laundering scandals of large and small banks, Investor fraud by windy investment companies – to name just a few examples.
It is still too early to praise the new Bafin; the Alder audit is just a first test that the agency has not yet passed. In addition, whether in the case of the Grenke leasing group or now at Adler: it was always others who first pointed out the grievances. Financial regulators rarely uncover anything on their own. After all, she now promises to follow all the clues consistently. If letters from whistleblowers no longer get lost in the wake of bureaucracy, and if they take their consumer protection mandate and the new balance sheet control competencies more seriously, these are two major steps forward. However, there is still a long way to go before the Bafin will be feared like the US Securities and Exchange Commission (SEC) with its mega fines.