A European Union financial regulator has released a report criticizing German authorities for not doing enough to prevent the fraud allegedly committed by the management of card operator Wirecard.
A major issuer of cryptocurrency debit cards since 2018, payments processor Wirecard starting coming apart in mid-June, when the Financial Times reported that its shares had fallen by more than 60% after the firm’s auditors warned that €1.9 billion (nearly $2.23 billion) was missing from its accounts. Before going into bankruptcy in late June, the fintech firm had been a big success, with operations far beyond the crypto business earning it a place on Germany’s prestigious Dax 30 stock index.
The company operated cryptocurrency-backed debit cards for Crypto.com and Wirex’s Asia-Pacific offering.
Wirecard’s failure was also a blow to the prestige of Germany’s regulators, the Federal Financial Supervisory Authority (BaFin) and Financial Reporting Enforcement Panel (FREP).
In a Nov. 3 press release, the European Securities and Markets Authority (ESMA) claimed to have identified failings in the German supervision of Wirecard’s financial reporting.
“Today’s report identifies deficiencies in the supervision and enforcement of Wirecard’s financial reporting,” ESMA Chair Steven Maijoor said. “The Report’s recommendations can contribute to the review of the German regime for supervision and enforcement.”
ESMA began focusing on the cryptocurrency industry in January 2019, when it warned that some crypto assets fell outside of the existing regulatory framework altogether.
In the results of the Wirecard study, ESMA claimed to identify “a number of deficiencies, inefficiencies and legal and procedural impediments.” Those failures pertained to the independence of BaFin from issuers and the government, market monitoring by both regulators, FREP’s examination procedures, and the supervisory system’s effectiveness in the area of financial reporting.
The report also notes that FREP did not examine Wirecard’s financial reports appropriately.
“The Wirecard case has once again highlighted that high-quality financial reporting is essential for maintaining investor trust in capital markets, and the need to have consistent and effective enforcement of that reporting across the European Union,” Maijoor said.