Germany’s financial regulator BaFin is expected to cut ties with bank lobbyists and ensure it does not receive orders from the finance ministry under rules proposed by Brussels in the wake of the Wirecard scandal.
The draft legislation will prevent bank supervisors across the EU from “seeking or taking instructions” or from being influenced by any external body, including companies that regulate them or government agencies. It will also tighten the rules on regulatory staff trading in the shares of supervised companies.
“Recent developments such as the Wirecard scandal have shown the need for clearer and more operational provisions on the principle of the independence of supervisors. This is included in our proposal, “said a commission official.
The provisions are being investigated in Germany. BaFin has been heavily criticized for its handling of the scandal involving Wirecard, the payment group 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, pointing out that the regulator had closely updated the finance ministry on its work “in some cases before actions have been taken “.
The report also marked the trading of Wirecard shares by some of BaFin’s team members as “worrying”.
The measures now proposed by Brussels are part of banking legislation proposed by the European Commission to strengthen financial supervision over the EU.
Sebastian Mack, policy partner for European financial markets at the Jacques Delors Center in Berlin, said the provisions, which are part of a broader regulatory package, “will greatly strengthen the operational independence of BaFin and other national supervisors”.
BaFin has three financial industry representatives on a 17-member administrative board that monitors its management and determines its budget. It also has a separate advisory board with industry representatives. These representatives will probably have to leave under Brussels’ plans.
Germany’s finance ministry believes the draft will not require a new legal setup for BaFin, according to a person familiar with the discussions.
Berlin believed BaFin had always been independent in making decisions about individual banks, the person said, while a parliamentary inquiry into the Wirecard case showed that it was respected by the Ministry of Finance.
The Ministry of Finance said: “We welcome the European Commission’s proposal to adapt the capital requirements guidelines,” adding that the measures are still being negotiated in Brussels.
The ministry said Germany preferred strong and effective oversight of operational independence, but said the country’s constitution required all government authorities to have parliamentary oversight.
The Association of German Banks, whose CEO Christian Ossig is on BaFin’s administrative board and advisory board, told the Financial Times it does not harm the regulator’s independence.
“The administrative board has no say over the regulatory activities or with regard to the appointment of top managers,” he said, adding that “there is currently no need to change the composition of the board” and that discussions in the advisory board “was useful for both sides”.
Gerhard Schick, a former Green MP who is the CEO of Bürgerbewegung Finanzwende, a German consumer finance lobby group, told the FT that “the financial industry’s lobby has no place in financial regulators”, adding that it is a “good step” will be. if the proposals were to be implemented.
Mack, of the Jacques Delors Center, said the commission’s proposal to ban supervisors from seeking and taking instructions would prevent the Treasury Department from controlling “the appropriateness and legality” of BaFin’s decisions.
But he added: “As long as the head of government can be fired at any time and for no reason, the government remains structurally dependent on the government.”
With the release of the new rules in October, the commission said that “recent developments” showed the need for clearer and more operational provisions on the principle of independence of competent authorities.
BaFin declined to comment.
Additional report by Daniel Dombey in Madrid