A study carried out for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on the implications of the accounting scandal that hit German payment service providerWirecard (see EUROPE 12512/15), published on Thursday 5 November, recommends the establishment of a single European capital market supervisor.
The first lines of defence against fraud - companies’ internal controls, supervisory boards and external audits - all failed in one way or another in the Wirecard case, the study found. “The scandal revealed weaknesses in the supervisory system more generally, demonstrating the need for broader reforms in Germany and Europe”, the authors conclude.
They make a series of recommendations including, at EU level, the establishment of a single European Capital Market Supervisory body, given the negative impact of fraud cases on a European market where national interests can play a role in market surveillance.
The study recognises that national supervisors are highly knowledgeable of the local situation and therefore recommends that they be integrated into a European supervisory network. A hub-and-spoke architecture with clear reporting lines to the hub will also introduce an element of institutional independence into national agencies and make it more difficult to hijack public regulations or decisions in favour of particular interests, according to the authors.
For the rest, the study considers that the responsibility of the external auditors should be strengthened so that they have a greater incentive to detect accounting manipulation and fraud.
In addition, the German regulator, BaFin, should be given additional supervisory and enforcement powers and its mandate should be clarified, according to the authors. “This accountability requires an appropriate level of institutional independence as well as sufficient resources to fulfil its tasks”, they say.
These recommendations are in line with that of the European Securities and Markets Authority (ESMA), which earlier this week concluded that there were a series of “deficiencies, inefficiencies and legal and procedural obstacles” in German supervision in this case (see EUROPE 12594/5).
See the study: https://bit.ly/38jQYca (Original version in French by Marion Fontana)