The Ministry of Finance should withdraw from the Bafin

After the Wirecard scandal and the Greensill imbalance, confidence in the financial supervisory authority is waning. The Ministry of Finance should also be to blame for this.

Finance Minister Olaf Scholz wants to create a

WScientists recommend greater independence for the financial supervisory authority Bafin, which has been criticized for the Wirecard accounting scandal. The Bonn authority should no longer be supervised by the Federal Ministry of Finance, it said in a paper published on Thursday by the Leibnitz Institute for Financial Market Research (Safe). “The reorganization of Bafin as an independent authority would send a clear signal to the capital and financial markets in Germany and Europe and would counteract the enormous loss of reputation after Wirecard and currently after the insolvency of Greensill Bank,” says Safe Director Jan Pieter Krahnen. In this way, the supervisory authority could act more effectively and impartially.

The payment processor Wirecard went bankrupt in June 2020 after uncovering a 1.9 billion euro hole in the balance sheet. The Munich public prosecutor’s office accuses several ex-managers of, among other things, commercial gang fraud, falsification of accounts and market manipulation. According to experts, the Bafin largely failed in the case. A parliamentary committee of inquiry is currently trying to clarify which mistakes the government and authorities have made. According to earlier information from the Ministry of Finance, there were no instructions to the Bafin in the case. You could have worked independently.

The committee of inquiry last set its sights on the controversial short sale ban imposed by Bafin in February 2019 for Wirecard shares. This gave the impression that the supervisors wanted to protect the company. All the more so because the Bafin also reported two journalists to the “Financial Times” who first reported on the inconsistencies in the Wirecard balance sheet. The ban on short selling was issued, although the Bundesbank had concerns at the time. The Ministry of Finance, which was previously informed of the measure, classifies the ban as a decision that Bafin made independently.

Report to the Bundestag

The scientists specifically propose to change the Financial Services Supervision Act (FinDAG). This could release the securities supervision from instructions from the ministry – both with regard to individual cases and general instructions in the area of ​​securities market supervision. In order to compensate for the loss of democratic legitimacy, which inevitably goes hand in hand with a decoupling, the Bafin should have to justify itself to the Bundestag – via annual reports and by answering questions from members of the parliament.

The economists are also calling for two international representatives to be appointed to the Bafin Board of Directors. The future Bafin President Mark Branson also brings foreign influence with him. The previous head of the Swiss Financial Market Authority should take up the new office in August at the latest.

“Extremely unusual” abroad

Abroad, the dependence on the government is “extremely unusual,” said Ann-Katrin Kaufhold, professor of constitutional and administrative law at Munich’s Ludwig Maximilians University. In the United States, the government has no legal means to influence individual regulatory procedures or decisions by the SEC. Krahnen said the dependency is a gateway for political interference that runs counter to securities oversight purposes and undermines the Bafin’s credibility. “The abolition of the right to issue instructions would put securities supervision on a par with banking supervision, which is already working independently in important areas.”

The EU stock exchange and securities regulator Esma has also criticized the Bafin’s dependence on the Ministry of Finance. Due to the many contacts between Bafin and the Ministry of Finance, there is a risk of political influence. The Ministry of Finance defends itself with the fact that the operational independence of the Bafin is already given. Although the legal and technical supervision lies with the ministry, the Bafin is independent in individual decisions.