A slew of regulatory investigations have been launched across Europe following Wirecard’s decision to file for insolvency.
A €1.9bn (£1.7bn, $2.1bn) accounting scandal has wracked the digital payments firm in the past week, triggering a 90 per cent stock crash and the arrest of its former CEO.
Once the wunderkind of Germany’s burgeoning financial technology sector, Wirecard announced on Thursday afternoon that it had begun legal proceedings in Munich “due to impending insolvency and over-indebtedness”.
On June 18, the firm was forced to postpone the publication of its 2019 results for the fourth time after its auditor EY refused to sign off. CEO Markus Braun soon stepped down to be replaced with James Freis, a former director of the US Treasury’s financial crimes unit.
This safe pair of hands was seemingly unable to fully restore the confidence of shareholders and creditors. Announcing its insolvency, Wirecard admitted that banks were threatening to call in €1.3bn of loans by July 1.
After filing for insolvency, Wirecard ceded control of funds at its banking unit to Germany’s financial watchdog BaFin. The funds have since been ring fenced in order to prevent them being deployed elsewhere at the company.
The scandal has raised questions about those bodies which oversaw the now disgraced company.
On Friday, the Financial Times reported that EY failed to ask for Wirecard’s bank statements for three years. Instead of directly checking with OCBC Bank to confirm that the Singaporean lender held significant levels of cash on Wirecard’s behalf, the auditor allegedly relied on documents and screenshots provided by the company and a third party.
The European Commission has now called for a probe into BaFin’s supervision of Wirecard, while Britain’s Financial Conduct Authority (FCA) has ordered the company’s UK arm to cease all regulated activity and freeze all assets and funds.