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| © Photographer: TOBIAS SCHWARZ/AFP German Finance Minister and Vice-Chancellor Olaf Scholz speaks during a Bundestag session, on July 2, 2020 at the lower house of Parliament in Berlin |
By Patrick Donahue, Bloomberg
German Finance Minister Olaf Scholz plans to unveil a reform of the government’s financial oversight, as the widening scandal over the collapse of Wirecard AG reaches the highest levels of Chancellor Angela Merkel’s government.
Scholz’s “action plan” would overhaul Germany’s regulatory machinery to streamline probes into irregularities among banks, insurers and payment companies, according to a draft proposal seen by Bloomberg News. Merkel’s finance minister will move “quickly” to implement the changes.
“We need to draw the right lessons from such scandals and bolster our rules,” the draft said, mapping out reforms to balance-sheet auditing, oversight structures and payment services designed to ensure that cases like Wirecard “can’t be repeated.”
The plan by Merkel’s finance minister is an attempt to assuage mounting criticism about why his ministry, as well as the chancellery, didn’t take action when they learned of possible malfeasance. The latest fallout includes an investor lawsuit against Germany’s financial regulator.
German Finance Minister Olaf Scholz plans to unveil a reform of the government’s financial oversight, as the widening scandal over the collapse of Wirecard AG reaches the highest levels of Chancellor Angela Merkel’s government.
Scholz’s “action plan” would overhaul Germany’s regulatory machinery to streamline probes into irregularities among banks, insurers and payment companies, according to a draft proposal seen by Bloomberg News. Merkel’s finance minister will move “quickly” to implement the changes.
“We need to draw the right lessons from such scandals and bolster our rules,” the draft said, mapping out reforms to balance-sheet auditing, oversight structures and payment services designed to ensure that cases like Wirecard “can’t be repeated.”
The plan by Merkel’s finance minister is an attempt to assuage mounting criticism about why his ministry, as well as the chancellery, didn’t take action when they learned of possible malfeasance. The latest fallout includes an investor lawsuit against Germany’s financial regulator.
Parliamentary Hearing
Merkel’s office confirmed that the chancellor made a pitch for Wirecard during a trip to China in September 2019, even though her office had been appraised of the allegations. The chancellery said she was unaware of any “severe irregularities” at the time.
Critics within Merkel’s government already raised questions, calling Scholz’s plan a political move that was unnecessary for putting through reforms, Handelsblatt reported, citing unidentified government officials. The proposal was earlier reported by Sueddeutsche Zeitung newspaper.
Opposition lawmakers are threatening to call for a parliamentary investigation as they press Merkel’s administration over how it pursued fraud allegations against Wirecard, a member of Germany’s benchmark DAX index.
Underscoring the impact of the scandal, the finance committee in Germany’s lower house of parliament plans to interrupt the summer recess to hold a special session on July 29 to discuss the payments company. Scholz and Economy Minister Peter Altmaier have been invited.
Altmaier said on Friday that he supports Scholz’s reform efforts.
Critics within Merkel’s government already raised questions, calling Scholz’s plan a political move that was unnecessary for putting through reforms, Handelsblatt reported, citing unidentified government officials. The proposal was earlier reported by Sueddeutsche Zeitung newspaper.
Opposition lawmakers are threatening to call for a parliamentary investigation as they press Merkel’s administration over how it pursued fraud allegations against Wirecard, a member of Germany’s benchmark DAX index.
Underscoring the impact of the scandal, the finance committee in Germany’s lower house of parliament plans to interrupt the summer recess to hold a special session on July 29 to discuss the payments company. Scholz and Economy Minister Peter Altmaier have been invited.
Altmaier said on Friday that he supports Scholz’s reform efforts.
Regulator Sued
Scholz’s plan particularly aims to bolster financial watchdog BaFin, which has taken much of the blame for the debacle. The agency may be expanded and given the power to intervene directly, as authorities scrap a two-tier system that splits accounting enforcement between a private-sector watchdog and the markets regulator. Critics have called the system cumbersome.
The plan also entails a 10-year rotation for auditors, which will be prevented from both consulting and auditing functions to avoid potential conflicts of interest.
BaFin, which reports to Scholz’s ministry, was sued by Wirecard investors who say the regulator turned a blind eye to widespread evidence of an accounting scandal.
Lawyer Andreas Tilp, who filed the suit in Frankfurt, said the regulator should have been aware of the financial problems engulfing the payments processor early last year. The suit was filed late on Thursday in a Frankfurt court and is seeking a status akin to U.S.-style class actions, he said.
“BaFin grossly neglected its duties and powers,” Tilp said in a statement on Friday. If BaFin had “properly investigated the matter,” any wrongdoing would have come to light earlier, he added.
A BaFin spokeswoman rejected the claims, saying the regulator always acted upon every indication of wrongdoing it received. Such a suit isn’t even admissible under the law as BaFin only acts on behalf of the public good, not individual investors, she added.
The plan also entails a 10-year rotation for auditors, which will be prevented from both consulting and auditing functions to avoid potential conflicts of interest.
BaFin, which reports to Scholz’s ministry, was sued by Wirecard investors who say the regulator turned a blind eye to widespread evidence of an accounting scandal.
Lawyer Andreas Tilp, who filed the suit in Frankfurt, said the regulator should have been aware of the financial problems engulfing the payments processor early last year. The suit was filed late on Thursday in a Frankfurt court and is seeking a status akin to U.S.-style class actions, he said.
“BaFin grossly neglected its duties and powers,” Tilp said in a statement on Friday. If BaFin had “properly investigated the matter,” any wrongdoing would have come to light earlier, he added.
A BaFin spokeswoman rejected the claims, saying the regulator always acted upon every indication of wrongdoing it received. Such a suit isn’t even admissible under the law as BaFin only acts on behalf of the public good, not individual investors, she added.
