Home Finance The German Financial System is in an Uproar

The German Financial System is in an Uproar


Their reputation in the financial and investment market is virtually ruined as of last week, over the Wirecard scandal.

FrankFrank Schäffler, German financial expert, stated, “We made ourselves look ridiculous internationally. It has become clear that we control our listed companies in a rather amateurish manner. That harms Germany as a location.”

  1. Ernst & Young, one of the “Big 4” accounting and auditing firms, for eleven years failed to notice fraud taking place.
  2. They in turn, are supposed to report in Germany to the Federal Financial Services Authority (BaFin). This group was established in 2002 to serve as the primary regulator of Germany’s financial markets and institutions. They are charged with the regulatory functions of those agencies with authority over Germany’s banks, financial services companies, insurance companies, stock exchanges, and other obligated institutions.

However, Bafin defined its scope so narrowly that only Wirecard Bank, and thus only a fraction of the entire Wirecard AG, was controlled. They are currently trying to blame the EU regulators.

  1. BaFin reports directly to the German Federal Ministry of Finance.

kukiesOne of their State Secretary’s, Jörg Kukies, stated recently that “self-regulation by the auditors doesn’t work properly”.

However, hiring an outside firm to do an independent audit on your organization is not “self-regulation”. All accountants are required to report illegal activity to the authorities, which is exactly what happened once Wirecard was investigated by another one of the “Big 4”, HSBC.


Deutschland. Bonn. Bafin. 7.3.2018. Photo: Bernd Roselieb

Deutschland. Bonn. Bafin. 7.3.2018. Photo: Bernd Roselieb

BaFin boss is Felix Hufeld. On July 1 this year, he will have to provide information about the circumstances of the Wirecard bankruptcy. This chief of the authority was mainly informed through the newspaper.

► Why was the Bonn authorities’ investigation not directed against the apparently criminal company management, but against journalists from the “Financial Times” and against hedge fund managers who jointly referred to the machinations?

► Why was only one single employee assigned to Wirecard at the German Accounting Office, which the BaFin had commissioned to conduct a special audit? And why did the BaFin accept that this man has not yet submitted a report or even an interim report?

► Who is responsible for the fact that a whistleblower was ignored who had already given the BaFin explosive documents on the events in 2019?

hessel_katjaOn Wednesday, Hufeld will appear before the Finance Committee of the Bundestag, which is headed by FDP politician Katja Hessel only since February. The case of Wirecard is for this lawyer and tax consultant will be her first test.

In a German podcast with independent journalist Gabor Steingart, she stated, “How can it be that the Wirecard case took place under his [Hufeld’s] supervision, and where does he think that his authority may have failed.” “And, if Mr. Hufeld has contributed …, it is of course questionable whether he will not have to take any consequences. ”

However, is he alone expected to take responsibility for this systemic failure? Will he be made a scapegoat, when it is clear and evident that there were failures above him as well as below?

What about the accountants at EY? The German shareholders’ association SdK stated that it had filed a criminal complaint against the auditors at EY. EY claims that “even the most robust and extended audit procedures” couldn’t uncover what it called a “collusive fraud”. Yet, continued warnings from the Financial Times went repeatedly ignored, and the HSBC audit this year raised “fresh concerns” and downgraded the group.

What about the German Federal Ministry of Finance and their systemic failure to make BaFin accountable in their work?

Investors should think long and hard before placing any trust in the German financial system.

Because, if it happened with Wirecard, it’s happening with other financial institutions.

David Enrich, business investigations editor at The New York Times, stated that BaFin’s top priority was protecting domestic companies, instead of actually supervising them.

OlafScholzWill Olaf Scholz, current head of the German Federal Ministry of Finance, take a closer look at all of the financial institutions operating in Germany, or will he think his job is done once Hufeld is fired or steps down?



(Translated from Gabor Steingart.)