Wirecard collapse prompts ESMA to evaluate German fin reporting system

Maria Nikolova

The assessment will focus on the application of the Guidelines on the Enforcement of Financial Information (GLEFI) by BaFin and FREP.

The European Securities and Markets Authority (ESMA) today announces that it will launch an assessment of the supervisory response in the financial reporting area by BaFin and the Financial Reporting Enforcement Panel (FREP) to the events leading to the collapse of Wirecard AG. It will be completed by 30 October 2020.

The assessment will focus on the application of the Guidelines on the Enforcement of Financial Information (GLEFI) by BaFin and FREP, the designated competent authorities for the supervision and enforcement of financial information in the Federal Republic of Germany under the Transparency Directive (TD).

The fast-track assessment will be conducted using GLEFI and ESMA’s Peer Review Methodology, within a compressed timeframe. The peer review tool has been chosen as the TD only contains high level principles regarding financial reporting and its supervision, and the IAS Regulation is not included in the list of acts for which ESMA may launch a Breach of Union Law investigation.

ESMA issued the GLEFI in 2014, on its own initiative, to promote consistent application and supervision of IFRS and in 2017, in support of this work, ESMA conducted a peer review with onsite visits in seven Member States. The review included BaFin and FREP and, while the country specific report highlighted positive aspects of the German enforcement model, it also identified areas for improvement. These included:

  • the procedures in place in both FREP and BaFin;
  • the selection and examination of issuers;
  • independence and conflict of interests in FREP; and
  • cooperation between the two authorities.

ESMA also invited BaFin and the European Commission, in the country-specific onsite report, to investigate whether the TD is correctly transposed by Germany, given BaFin’s self-declared inability to comply with the GLEFI due to a lack of enforcement powers.

In the meantime, the sales processes for the insolvent Wirecard AG’s core business, the acquiring and issuing business, as well as the independent business units of the Group companies worldwide have been launched. Following a further meeting of the preliminary creditors’ committee of Wirecard AG, the preliminary insolvency administrator, Dr. jur. Michael Jaffé of the law firm JAFFÉ Rechtsanwälte Insolvenzverwalter, announced that more than 100 parties have already registered interest.

Activities for the US company Wirecard North America are the most advanced. The international investment bank Moelis & Company has already been mandated to support the sale of this company with the approval of the preliminary creditors’ committee. Investor processes are also currently being initiated for other international affiliates as well as the core business, acquiring and issuing.

At the same time, ongoing costs are being further reduced. “We have already implemented cost-cutting measures. The insolvency funds for the more than 1,500 employees of the insolvent companies are currently relieving the liquidity situation. The employees will receive their first salary payments in a few days, as the pre-financing of the insolvency funds is already underway,” said the preliminary insolvency administrator Dr. jur. Michael Jaffé.

Measures have also been taken to safeguard assets at the various international locations. Experienced specialists have started work on this. Such efforts are accompanied by further clarification of the causes of the crisis and the analysis of cash flows.

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