After the Wirecard scandal, the European Union seeks more independence from banking regulators

The German financial regulator BaFin will have to cut ties with banking lobbyists and ensure that it will not accept orders from the Ministry of Finance in accordance with the rules set by Brussels following the Wirecard scandal.

The draft legislation will prevent bank supervisors across the European Union from “seeking or accepting instructions” or being influenced by any outside agency, including the companies or government agencies they supervise. It will also tighten the rules for supervisors to trade the stocks of regulated companies.

“Recent developments such as the Wirecard scandal have shown that there is a need for clearer and more operational regulations based on the principle of independence of regulators. This is included in our proposal,” a committee official said.

Germany is reviewing these regulations. BaFin was severely criticized for its handling of the Wirecard scandal, and the payment group went bankrupt in 2020 after exposing years of fraud.

A report from the European Securities and Markets Authority last year questioned BaFin’s independence from political interference, stating that regulators are closely updating the work of the Ministry of Finance “before taking action in some cases.”

The report also marked the Wirecard stock trading of some of BaFin’s team members as “worrying.”

The measures now proposed by Brussels are part of the banking legislation proposed by the European Commission, which aims to strengthen financial supervision across the European Union.

Sebastian Mack, a European financial market policy researcher at the Jacques Delors Center in Berlin, said that these regulations are part of a broader regulatory program and “will greatly enhance the operational independence of BaFin and other national regulatory agencies.”

BaFin has three financial industry representatives in a 17-member administrative committee, responsible for overseeing its management and setting budgets. It also has an independent advisory committee composed of industry representatives. According to Brussels’ plan, these representatives may have to leave.

According to people familiar with the matter, the German Ministry of Finance believes that the draft does not require the establishment of a new legal institution for BaFin.

The person stated that Berlin believes that BaFin has been making independent decisions on individual banks, and the parliamentary investigation into the Wirecard case shows that this is respected by the Ministry of Finance.

The Ministry of Finance said: “We welcome the European Commission’s proposal to adjust the capital requirements directive,” adding that these measures are still being negotiated in Brussels.

The ministry stated that Germany is in favor of strong and effective supervision with independent operations, but stated that the country’s constitution requires all government authorities to require parliamentary supervision.

Christian Ossig, chief executive of the German Banking Association, who is a member of the administrative and advisory committees of BaFin, told the Financial Times that this did not compromise the independence of the regulator.

“The administrative committee has no say in overseeing activities or appointing senior managers,” it said, adding that “there is no need to change the composition of the board at this time” and the discussion of the advisory committee is “useful for both parties.”

Gerhard Schick, the CEO of the German consumer finance lobby group Bürgerbewegung Finanzwende and a former green councillor, told the Financial Times that “the lobbying groups of the financial industry have no place in the financial regulators” and added that it would be “good” One step” if these recommendations are implemented.

Mack of the Jacques Delors Centre said that the committee’s proposal to prohibit regulators from seeking and accepting instructions would prevent the Ministry of Finance from controlling the “appropriateness and legality” of BaFin’s decisions.

But he added: “As long as the person in charge of the authority can be removed from office at any time without giving reasons, the authority still relies on the government in terms of structure.”

When issuing new rules in October, the committee stated that “recent developments” indicated the need for clearer and more operational regulations on the principle of independence of competent authorities.

BaFin declined to comment.

Additional reporting by Daniel Dombey in Madrid

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