Wirecard Probe Set to Put Finance Watchdogs Under Spotlight

Germany’s financial watchdogs are front and center on the second day of a parliamentary hearing into the spectacular collapse of Wirecard AG as their inability to uncover the country’s biggest corporate fraud in living memory makes a deeper investigation more likely.

Lawmakers in Berlin set the scene for their questioning of the head of financial market regulator BaFin and the Bundesbank’s top banking watchdog by calling out failures of a wide range of authorities in the country. Meanwhile, a key opposition party signaled it may provide the support needed to start a full parliamentary probe as Germany gears up for elections next year.

Wirecard’s crash from rising star to national disgrace has undermined the country’s reputation as a reliable place to do business and delivered a major blow to its fragile base of retail investors. While the government is taking action to prevent a repeat, authorities have struggled to dispel the impression that they were more focused on protecting Wirecard than investigating allegations of wrongdoing.

“Little has been cleared up so far,” Hans Michelbach, a member of the CSU -- the Bavarian sister party of Chancellor Angela Merkel’s CDU -- told reporters in Berlin on Tuesday. “There have been contradictions.”

There’s an extremely high chance that a full parliamentary probe will take place, according to Lisa Paus, a member of the opposition Greens party. ”There will need to be a miracle” for it not to happen, she said in an interview with ZDF television.

A key question for BaFin and the Finance Ministry is why the regulator didn’t classify Wirecard as a financial company, according to Michelbach. That would have subjected the payments provider to stricter scrutiny by the watchdog, which only directly oversees banks and insurers.

BaFin has sought to defend itself by saying that reclassifying Wirecard wouldn’t have helped much in unearthing the fraud because it would have still relied on the company’s audited accounts. Still, lawmakers may ask BaFin President Felix Hufeld why his institution’s probes of Wirecard’s banking unit failed to point to problems at the wider company.

Hufeld had a rocky time after an earlier hearing in July -- Finance Minister Olaf Scholz and Economy Minister Peter Altmaier were also called to testify -- and will probably be focused on getting the facts across more clearly while defending BaFin’s actions.

The Bundesbank, whose role was largely limited to supporting BaFin in its oversight, was drawn deeper into the scandal with the disclosure this month that former Wirecard Chief Executive Officer Markus Braun met with a senior official at the central bank last year. While it isn’t clear what was discussed, the meeting shows Wirecard’s connections to Germany’s top decision makers.

Michelbach called out Deutsche Boerse AG, the operator of the Frankfurt stock exchange, for burnishing Wirecard by including the stock in its DAX Index of major listed companies in 2018. Florian Toncar, a lawmaker for the opposition Free Democrats, added Munich prosecutors to the list of institutions bearing some blame for the mess at Wirecard. Talking to reporters in Berlin before the hearing on Tuesday, he said that the prosecutors terminated a probe in 2019 into potential money laundering involving the company.

That sentiment was echoed by Fabio de Masi, a member of the opposition Left party, “We have to ask what went on at the prosecutor’s office,” he said. “They shut the situation down.”