The German Federal Ministry of Finance wants to make the Federal Financial Supervisory Authority (Bafin) more effective following the resignation of the current Bafin President Felix Hufeld in the wake of the Wirecard scandal. To this end, the ministry today presented a seven-point plan. Jan Krahnen, Director of the Leibniz Institute for Financial Research SAFE, offers his view on the matter.
“The Wirecard case reveals a technical weakness in German capital market supervision that makes comprehensive reform unavoidable: First and foremost, the aim should be to help Bafin achieve institutional autonomy, and thus also greater independence from a single ministry. Strengthened in this way, Bafin could then decide based on its own insight which focal points are needed for effective market supervision. This would certainly include balance sheet expertise, as has now been announced by the Federal Ministry of Finance in its seven-point plan presented today.
The other reform points – focus supervision, task forces, balance sheet control procedures, data intelligence unit, supervisor cockpit – are also important and necessary individual steps that can only be welcomed. They will certainly strengthen competencies. Nevertheless, the question remains as to why these organic developments in quality assurance have not come about from within but are now initiated at ministry level.
It is also striking that the reform plan does not explicitly address the issue of strengthening substantial capital market and trading expertise, which is part of the core know-how of a supervisory authority. Such expertise was bitterly lacking only recently in the handling of the Wirecard short sales.
Technical expertise is the ultimate essence of a supervisory authority that intends to compete internationally more than ever in the future. This is not a small thing. Regulatory issues are becoming a significant factor for investors when making investment decisions. For the same reason, the integrity of markets as well as the quality of their supervision have become real competitive factors for global IPOs and capital flows today.
At SAFE, we have illustrated in detail the particular importance of market integrity and its safeguarding by highly competent supervision in an expertise on the Wirecard case together with an international team of financial and legal researchers for the European Parliament.”