Felix Hufeld, head of Germany’s financial watchdog BaFin, and his deputy Elisabeth Roegele have been pushed out over their handling of the Wirecard scandal, the worst accounting fraud in the country’s postwar history.
In a statement, Olaf Scholz, finance minister, said the Wirecard affair had revealed that Germany’s system of financial regulation “needs to be reorganised, so that it can fulfil its supervisory role more effectively”.
The government did not immediately name their successors. The departure of Mr Hufeld, who had run BaFin since 2015, was announced on Friday afternoon. A few hours later, the finance ministry announced that Ms Roegele, who had been in charge of financial markets supervision, is also leaving.
Wirecard announced in June last year that €1.9bn in cash was missing from its accounts, and, within a week, collapsed into insolvency. Its former chief executive Markus Braun is under investigation, suspected of running a criminal racket that defrauded creditors of €3.2bn. He denies any wrongdoing.
For months, BaFin has been under fire for ignoring early warnings about fraud at Wirecard, and targeting journalists and short sellers who pointed out misconduct at the payments processor.
In April 2019, the watchdog filed a criminal complaint against two Financial Times reporters, triggering an investigation that was only dropped months after Wirecard’s collapse. Last year, the European Securities and Markets Authority criticised BaFin for its “deficient” handling of the scandal.
Days after the fraud was uncovered, Mr Hufeld acknowledged that “a whole range of private and public entities, including my own, were not effective enough” at preventing the “complete disaster” at Wirecard. In the months that followed, however, he adopted a more defiant tone and repeatedly defended BaFin’s handling of the affair.
The FT revealed this week that he had suggested Wirecard might be the victim of an elaborate plot by short sellers, even after the company itself acknowledged the hole in its balance sheet.
Pressure on BaFin has steadily mounted, especially after the German Bundestag last year established a full committee of inquiry into the regulatory failings that allowed the Wirecard scandal to happen.
Meanwhile, the actions of some of its staff have also provoked outrage in Berlin. Just this week BaFin disclosed that it filed a criminal complaint against an employee for insider trading with Wirecard shares in June last year. The FT on Friday also reported that the authorities’ decision to ban the shorting of Wirecard shares in 2019 was based on flimsy oral evidence provided by the company itself.
Mr Scholz had initially resisted pressure to ditch Mr Hufeld, focusing instead on a sweeping plan to reform BaFin and so restore confidence in Germany’s system of regulation.
However, as evidence of regulatory failures at BaFin continued to mount, the finance minister was forced to take more drastic action. In a statement on Friday, he said he and Mr Hufeld had discussed the situation and reached a mutual decision “that, alongside organisational changes, there should also be a change at the top of BaFin”.
The planned reform of BaFin could only succeed with a “change at the top”, Mr Scholz said.
Fabio De Masi, an MP for the hard-left Die Linke party, called Mr Hufeld's departure “overdue”, and said the position of his deputy, Ms Roegele, had also become “untenable”. As the head of BaFin’s securities department, she was behind the controversial decision to ban the short selling of Wirecard shares in 2019.
In a discussion with Bundesbank vice-president Claudia Buch, who argued against a ban on short selling, Ms Roegele justified the drastic measure with reference to ongoing investigations by Munich prosecutors, according to a document seen by the FT.
Mr Hufeld has repeatedly insisted in recent months that, based on the information that was at his disposal in 2019, he would again impose a ban on short selling.
Lisa Paus, a Green MP on the committee of inquiry, said it was “almost grotesque how long Scholz held on to Hufeld”. She described the short selling ban as a “disastrous mistake that contributed to the fact that the fraud could continue for far more than a year”.
BaFin has also been criticised for remarks in a 2016 memo prepared for the finance ministry in which it pointed out that short sellers betting against Wirecard “all appear to share a rather homogeneous cultural background — mainly Israeli and British citizens”.
Matthew Earl, a London-based short seller who was in BaFin’s crosshairs at the time, told German MPs on Friday that he found that remark “shocking and revolting”.