Financial regulator reform: a long road from embarrassment to world class

Dhe question of how the success of a financial regulator can be measured is a very difficult one, according to Mark Branson. On Wednesday at the press conference on the first reform steps under the new President of the Federal Financial Supervisory Authority (BaFin), he avoided a specific answer. But shortly after his appointment in the spring, he announced his goal to members of the Bundestag: “Germany needs world-class financial supervision.”

The Bonn-based authority with around 3,000 employees is still a long way from this, because the accounting scandal surrounding the payment service provider Wirecard has relentlessly exposed the weaknesses of German financial supervision and embarrassed Germany as a financial center all over the world. The 52-year-old Briton with a Swiss passport is now supposed to set up this authority again. On August 1, Branson took up his new post in Bonn, before that he had headed the Swiss Financial Market Authority for higher salaries.

Finance State Secretary Jörg Kukies is committed to finding an internationally recognized financial supervisor so quickly after Felix Hufeld, who stumbled upon the Wirecard scandal, resigned. It was also he who tried to keep his back as far as possible free of his previous employer, Federal Finance Minister Olaf Scholz (SPD), in the Wirecard scandal. But the two could not avoid a fundamental reform of the BaFin, over which the Ministry of Finance has legal and technical supervision.

“On a very good path”

Now Kukies could praise Branson for the work he has done in the first few weeks since taking office. “The modernization of BaFin is on the right track,” he said. The company is in the process of setting new standards in financial supervision and has made good progress at BaFin. This included Kukies focus supervision, who deals with complex companies. Communication with whistleblowers, i.e. secret whistleblowers, would already meet the standards of the EU Whistleblower Protection Directive.

The State Secretary, who was previously Germany’s head of the American investment bank Goldman Sachs, sees BaFin on the right track to provide effective balance sheet control from a single source for all companies listed in Germany from 2022. As Chairman of the Board of Directors of BaFin, Kukies bears particular responsibility for the seven-point plan presented by Scholz to reform financial supervision. After the Wirecard debacle, the SPD chancellor candidate wants financial supervision with a bite. Despite all the progress, it will still take a while before the likely new Federal Chancellor can confirm that this has been implemented.

“Just the beginning”

Because Branson stepped on the brakes in the press conference: “The steps so far represent only the beginning of the further development of BaFin. This is a long-distance run.” Marathon necessary. Nonetheless, he was impressed by the speed of implementation and the breadth of the BaFin reform.

This task, together with the responsibility for an important authority in the largest European economy, is likely to have stimulated the mathematician and former UBS asset manager to take up the position at the top of the BaFin for a lower salary than in Switzerland. Branson wants to fundamentally realign BaFin: “High-quality decisions, clear, ambitious goals and a modern, digital way of working.” This takes time, but the direction is right and the motivation is high.

It is also important to employ qualified personnel from the financial sector, as well as auditors, lawyers and consultants. They earn more in the private sector than in financial supervision, but Branson still wants to inspire these mid-career professionals to work in supervision. 150 new jobs will be created as part of the reform. Branson sees the process of acquiring suitable employees on the right track, even if it is not finished yet. Around 80 percent of these positions have already been filled or are in the specific selection process.

The planned restrictions on employee transactions with shares in supervised companies are at best a marginal issue in the job interviews. In the coming weeks, Branson intends to present the new rules for securities investments after BaFin employees’ trading in Wirecard shares caused the public to lose confidence.

The rapid reaction force and focus supervision of financial institutions with complex or innovative business models started in mid-August. The staff unit reports directly to the new BaFin President. The balance sheet control is still under construction. According to the lessons from the Wirecard scandal, BaFin should in future be able to carry out event and random checks of the balance sheets of all companies listed in Germany.

In addition, Kukies wants to recruit auditors. At the beginning of 2022, the experts from the previously responsible German auditing agency for accounting will join BaFin. In total, the audit by the financial supervisory authority should include 60 employees.

Leave a Comment