By Elizabeth Hearst
The Wirecard scandal will enable the EU to “strengthen” its financial supervision system in order to “avoid that kind of situation happening again”, Executive Vice President of the European Commission Valdis Dombrovskis said.
Dombrovskis said the issues surrounding the German payment processing company further highlighted the need for additional reinforcement of financial watchdogs in the EU.
In an interview with the Financial Times, Mr Dombrovskis, a former Latvian Prime Minister said that a previous attempt in 2017 to reform the financial supervisory system in the EU, that was subsequently watered down by national governments was a “missed opportunity”.
Mr Drombovskis added that the Wirecard case stemmed from the fact that “investors were not given the truthful information about the state of play of the company”.
As vice president responsible for economic policy, Mr Drombovskis described how the EU was looking to reinforce the role of audit committees at listed companies. This reinforcement would ensure that companies would be maintaining adequate due diligence.
Mr Dombrovskis’ attempts to revolutionize the European financial system began in 2017 where he spearheaded an effort to reform the EU financial-market regulatory ESMA and its subsidiaries for banking and insurance.
Mr Dombrovskis proposed these agencies should be more financially independent from national authorities, but many of his efforts were watered down by national governments. Mr Dombrovskis labelled the end result as “much more limited than the initial commission proposal”.
An investigation into Wirecard, the German payment processing company, will be carried out by ESMA into the work of BaFin – the German financial regulator and FREP, a private-sector body that monitors company accounts.
The investigation will examine German authorities and their enforcement of EU rules on sound financial reporting at listed companies, at the behest of Mr Dombrovskis.
The Wirecard scandal has sent shockwaves through European institutions due to the fact it breached three lines of defence that protect EU investors, through regulation and corporate governance requirements, the work of auditors and sound supervision by public authorities.
“Wirecard’s failure potentially raises issues at all three levels of defence and this is why we are now looking at those issues comprehensively… and will take necessary actions”, added Mr Drombrovskis.
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