Germany Plans Regulation Reform For Insurers, Banks, Payment Firms on Wirecard Collapse

July 27, 2020 by Patrick Donahue

German Finance Minister Olaf Scholz intends 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 16-point “action plan” would install a streamlined system to pursue irregularities among banks, insurers and payment companies, according to draft reported by Sueddeutsche Zeitung newspaper. The new rules would be put in place by spring of next year, the newspaper said.

The plan by Merkel’s finance minister is an attempt to assuage heavy 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.

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.

The Finance Ministry didn’t immediately confirm the details of Scholz’s proposals.

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.

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

Financial watchdog 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 said the regulator will comment on the suit later on Friday.

–With assistance from Karin Matussek and Oliver Sachgau