Germany’s financial regulator BaFin is likely to have to cut ties with banking lobbyists and ensure that they do not take orders from the finance ministry under rules proposed by Brussels in the wake of the scandal. Wirecards.
The draft law would prevent bank supervisors across the EU from “seeking or acting on instructions” or being influenced by any external authority, including the companies they operate or regulatory agencies. government. It would also tighten rules on how employees buy and sell shares of supervised companies.
“Recent developments such as the Wirecard scandal show the need for clearer operating provisions and more on the principle of independence of custodians. This is included in our proposal,” said a committee official.
The terms are under scrutiny in Germany. BaFin has been heavily criticized for its handling of a scandal involving Wirecard, the payments conglomerate that collapsed in 2020 after revealing a multi-year fraud.
A report by the European Securities and Markets Authority last year raised questions about BaFin’s independence from political interference, indicating that the regulator was closely updating the finance ministry on its work “in some cases before taking the action”.
The report also flagged Wirecard stock trading by some members of BaFin’s team as “disturbing”.
The measures proposed by Brussels are now part of a banking law proposed by the European Commission to strengthen financial supervision across the EU.
Sebastian Mack, Policy Fellow for European Financial Markets at the Jacques Delors Center in Berlin, said the provisions, which are part of a broader regulatory package, “will greatly enhance operational independence. by BaFin and other national watchdogs”.
BaFin has three financial industry representatives on a 17-member administrative board that oversees its management and budgeting. It also has a separate advisory board with industry representatives. These representatives will likely have to leave according to Brussels’ plan.
The German finance ministry believes the draft will not require a new legal setup for BaFin, according to a person familiar with the discussions.
Berlin believes that BaFin has always been independent to make decisions over individual banks, the person said, while a parliamentary investigation into the Wirecard case has shown this to be respected by the finance ministry.
“We welcome the European Commission’s proposal to revise the capital requirements directive,” the finance ministry said, adding that the measures were still being negotiated in Brussels.
The ministry said Germany favors strong and effective supervision with operational independence but said the country’s constitution requires all government agencies to have parliamentary oversight.
The German Bankers Association, whose chief executive Christian Ossig is on the administrative and advisory board of BaFin, told the Financial Times that this does not undermine the independence of the regulator.
“The board of directors has no say over management practices nor on the appointment of top-level executives,” it said, adding that “there is currently no need to change the composition of the board.” governance” and the discussions in the advisory council are “useful for both parties”.
Gerhard Schick, a former Green MP who is chief executive officer of Bürgerbewegung Finanzwende, a German consumer finance lobbying group, told the FT that “financial industry lobbying has no place in institutions. financial regulator”, adding that it would be a “good move” if the proposals would be implemented.
Mack, of the Jacques Delors Center, said the committee’s proposal to ban supervisors from seeking and implementing the directive would prevent the finance department from controlling the “appropriateness and legality” of BaFin’s decisions. .
But he added: “As long as the head of the agency can be removed at any time and without giving reasons, the authority remains structurally dependent on the government.”
The commission said when new rules were issued in October that “recent developments” had shown the need for clearer and more active provisions on the principle of independence of agencies. authoritative.
BaFin declined to comment.
Additional reporting from Daniel Dombey in Madrid