As a result of the Wirecard scandal, the Financial Market Integrity Act (FISG for short) was promulgated on 25 June 2020. This is primarily intended to close gaps in the supervision by the Federal Financial Supervisory Authority (BaFin). In addition to the overview of the Wirecard scandal, we explain the main regulatory approaches and highlight the effect of the Financial Market Integrity Act.

The Financial Market Integrity Act is based on the Wirecard scandal. Wirecard AG is a listed German payment service company founded in 1999 and offers solutions for electronic payment transactions, risk management and the issuance and acceptance of credit cards.

Since 2008, Wirecard AG has been publicly accused of incorrect or misleading accounting. Therefore, auditors were commissioned by Wirecard AG, who could not confirm the allegations. In addition, Wirecard AG has repeatedly taken legal action against critical analysts and journalists. The Federal Financial Supervisory Authority (BaFin) and the Munich Public Prosecutor’s Office also initiated investigations against critics for attempted market manipulation. As a result of reports by the Financial Times about the falsification of the balance sheet of Wirecard-AG, the share of Wirecard-AG collapsed by about 50%. Therefore, the Federal Financial Supervisory Authority issued a temporary short purchase ban for the shares of Wirecard AG. That played the Wirecard share but of course at the time in the cards. So Wirecard was able to portray the critics further than people who wanted to push the course. The German authorities not only watched, but also supported Wirecard.

In April 2020, an auditing firm commissioned by Wirecard AG was not able to resolve all allegations for the first time. On 25 June 2020, Wirecard AG filed for insolvency because of imminent insolvency and over-indebtedness after the regular auditors had refused an unrestricted certificate, as assets exceeded 1.9 billion. € should not be shown in the balance sheet.

In retrospect, it was also announced that BaFin had already granted an audit order to the German Audit Office for Accounting in February 2019 due to inconsistencies in the half-year balance sheet of Wirecard AG in 2018. According to media reports, only one employee was tasked with the complex and complex audit by the German Audit Office for Accounting over 16 months. In this situation, especially with regard to the complex corporate structures, it was therefore to be expected that the case could not be resolved.

In principle, according to §§ 108 I 1 WpHG ff. a.F., the Federal Financial Supervisory Authority was responsible for auditing company accounts and company reports. This method was included in a two-step examination. At the first stage, only the German Audit Office for Account Interpretation (DPR e.V.) checks. However, not every annual financial statement or half-yearly financial statement is audited at individual or group level. Rather, this requires either a concrete indication of a breach at the request of the Federal Financial Supervisory Authority or it is only checked on a random basis on a special occasion.

BaFin was only able to intervene at the second stage of the procedure. It could only carry out an independent examination under the conditions of § 108 I 2 to 4 a.F. WpHG. In the Wirecard scandal, however, BaFin had to continuously monitor the auditing activities of DPR e.V. pursuant to § 108 I 2 WpHG a.F., as there were considerable doubts about the proper conduct of the audit by DPR e.V. These resulted from the fact that only one employee was responsible for the review and there were many critics.

Therefore, it was not enough that BaFin only gave the test order to DPR e.V. and waited for the test result. In particular, BaFin should have had doubts about the proper audit by DPR e.V. In fact, the published mail traffic of BaFin clearly shows that an employee only asked DPR e.V. in May 2020 why the examination takes so long. BaFin received a substantive answer. Nevertheless, until the insolvency application for Wirecard AG was filed, it only dealt with the question of whether it could now draw the investigation procedure itself.

All these events led to the Wirecard scandal. Both the authorities and the politicians are promised significant failure. As a result, it was necessary to reform the current legal situation. This was done through the Financial Market Integrity Act.

As a result of the Wirecard scandal, BaFin should therefore be reformed, among other things. Accordingly, the control of complex companies at BaFin should be subject to focus supervision. A task force is to be set up so that BaFin can carry out ad hoc examinations and special examinations on its own in the future. The balance sheet control procedure is also to be reformed. In addition, the exchange with market participants and whistleblowers should be intensified. All this is to be achieved by the Financial Market Integrity Act.

Central to the Financial Market Integrity Act is the reform of balance sheet control. The new system will enter into force on 1.1.2022.

According to § 107 I 1 WpHG, BaFin can now also order an examination if it carries out or has carried out an examination according to the KWG, KAGB or VAG and the examinations concern the same subject matter. BaFin can publish the examination order in the Federal Gazette or on the website in the event of public interest. The subject matter of the audit can now also include the financial statements and reports of the two previous years.

There are comprehensive information powers and preliminary powers. Among them now also to all board members and employees of the issuer as well as the auditors as addressees. For the first time, BaFin officials have search and seizure powers in connection with balance sheet control. In addition, BaFin can also make procedural steps and gained knowledge known for the first time in public interest. Errors are to be published immediately according to § 109 I, II WpHG. However, BaFin must delete all announcements from your website after 10 years.

Confidentiality obligations among authorities are significantly softened. This is to avoid that one authority may have information on balance sheet manipulations, but may not be allowed to forward it to the other authorities. According to §§ 119 a to 119 c WpHG, there are now new penal provisions, among other things, for incorrect insurance in annual and half-yearly financial reports and for incorrect information provision.

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§ 42 II BörsG now includes the exclusion possibility of an issuer from parts of the regulated market by the management of the stock exchanges. The exclusion therefore applies if the additional requirements of § 42 I BörsG are no longer met or the issuer does not fulfil information obligations according to § 42 I BörsG even after a set deadline. This is to ensure that insolvent companies no longer have to be listed in sub-segments. According to § 50a III BörsG, measures against issuers can also be published on the website of the respective stock exchange.

As part of the Wirecard scandal, it emerged that employees of BaFin also carried out financial transactions relating to Wirecard AG during the critical period. § 11a FinDAG now includes a far-reaching trading ban in relation to the vast majority of financial instruments that include BaFin supervisory objects. Employees may also be classified in risk categories to which the trade ban applies either partially or in full. However, this is constitutionally problematic, as some of the employees can build up and invest through relevant financial instruments, but others cannot without receiving financial compensation. As a result, some of the employees in certain areas of BaFin no longer want to work.

As part of the final examination, there is now an auditor rotation after ten years according to § 264a I HGB. This is intended to prevent statutory auditors from becoming blind to the statutory audit of the same company after a long period of time. On the other hand, it should be prevented that the final examination is not so closely looked or looked away in order to receive the lucrative final examination again in the following years. Furthermore, it is imperative that auditing and tax advisory services are separated for public-interest entities. Thus, the statutory audit should be independent of parallel or follow-up transactions.

Furthermore, the supervisory board of a company must set up an audit committee in accordance with § 107 IV 1 AktG. Any member may obtain information directly from the heads of the central divisions of the company through the chairman of the committee. As a result, Supervisory Board members acting as audit committees can quickly carry out their control activities without the detour via the Executive Board. This facilitates the control function and prevents any falsification of the supplied information by a possibly criminally acting board.

In addition, the auditor is more liable under civil law. He, his assistants and participating legal representatives of the audited company are liable not only for intent, but also for gross negligence. On the basis of the graduations of § 316 a HGB, the liability is no longer capped at € 1 million as before. Now there are three different caps i.e. 1.5 million €, 4 million € and 16 million €.

The step to reform the authorities is initially a plausible step. Nevertheless, it seems questionable how BaFin actually wants to cope with the additional expenses incurred by the authority due to the tightened accounting role. In addition, civil servants usually have no danger of losing their jobs and on the other hand, not the best opportunities for promotion. The incentive to carry out the check properly therefore appears low. On the other hand, the earning potential of auditors in the free market economy is significantly higher. It is therefore questionable how qualified professionals can be found. However, this is necessary in the detection of balance sheet manipulations of large supervisory objects.

As things stand, the quality and quantity of the auditors who control the audit should rather be compensated by the change in the audit itself, so that BaFin has to control the audit only superficially again. Finally, it is also questionable why the procedure is being transferred to an authority which itself made serious mistakes in uncovering the scandal. As a result, effective law enforcement is considerably impeded. In addition, BaFin remains subject to the legal and specialist supervision of the Federal Ministry of Finance and is therefore politically influenced.