The EU securities markets watchdog is to carry out a fast-track assessment of the German financial reporting system following the collapse of Wirecard.
The assessment will focus on the supervisory response by regulator BaFin and financial reporting enforcement authority FREP to the events leading to the collapse of Wirecard AG, and specifically on their application of guidelines (GLEFI) issued by ESMA in 2014 on the enforcement of financial information.
Wirecard, a member of Germany’s bluechip DAX index, filed for insolvency last month after revealing a €1.9bn hole in its accounts and reported incidences of fraud.
“High quality financial reporting is core to investor trust in capital markets and Wirecard’s collapse has undermined this trust,” said ESMA in a statement today. “Therefore, it is necessary to assess these events to help in restoring investor confidence.”
ESMA said the assessment would be conducted using its peer review methodology because the EU Transparency Directive only contained high level principles regarding financial reporting and its supervision, and the International Accounting Standards Regulation was not included in the list of acts for which ESMA could launch an investigation into a potential breach of EU law.
The watchdog today made available a peer review assessment of Germany that was previously confidential, saying it was doing so “in view of the overriding public interest in this particular case and the enforcement of financial reporting in Germany”.
The peer review was carried out by ESMA in 2017, with Germany one of seven EU member states covered. ESMA noted that its Germany report identified areas of improvement to the country’s enforcement model, including:
1. the procedures in place in both FREP and BaFin;
2. the selection and examination of issuers;
3. independence and conflict of interests in FREP; and
4. cooperation between the two authorities.
According to ESMA, in the report it also invited BaFin and the European Commission to investigate whether the Transparency Directive was correctly transposed by Germany, “given BaFin’s self-declared inability to comply with the GLEFI due to a lack of enforcement powers”.
ESMA’s announcement of the fast-track assessment comes after the Commission wrote to the watchdog in late June to invite it to conduct a fact-finding analysis of the events leading up to the collapse of Wirecard.
ESMA said its assessment would be completed by 30 October.