German regulator Bafin is the second-biggest loser in the case of Wirecard’s missing $2.12 billion. finews.com looks at whether this could happen in neighboring Switzerland, which maintains a very similar supervisory regime.
The blow-up of Wirecard was literally years in the making – and Bafin missed it. The German regulator didn’t begin investigating the fintech until last month despite warning signs as early as 2015.
Germany’s proximity to Switzerland as well as similar approaches in financial supervision raise the question: could a Wirecard-sized snafu happen on Swiss regulator Finma’s watch too? finews.com looks at three key differences – and a huge caveat:
1. Straying From Principle-Based
Like Bonn-based Bafin, Finma pursues a principles-based style of oversight, as opposed to specific, set-in-stone rules. The idea is to give regulated firms enough leeway to make sound, principled decisions, adhering to law and guidelines.
Bafin toed the principles-based line less strictly than Finma: last year, the German regulator banned short-selling for two months after hedge funds shorted Wirecard’s shares.
Swiss overseers introducing a case-specific ban like Wirecard’s is, quite simply, almost inconceivable. Switzerland didn’t follow other European regimes including France, Italy, and Spain on a temporary ban due to the pandemic earlier this year either. Let the market decide, is the conventional wisdom in Bern, which last imposed a short-selling ban in 2008 following the collapse of Lehman Brothers.
2. Protectionism vs Unsentimental
As keen as Bern is to foster fintech, Finma genuinely doesn’t care whether any given start-up lives or dies. The Swiss approach is hands-off of business: the Swiss market offers other goodies like a low tax rate, easy access to venture cash, and flexible labor law that help, but they aren’t regulatory purview. Finma doesn’t view promoting the Swiss financial center as part of its job description.
3. Proactive vs Inwardly-Focused
Regulation is by definition not proactive – supervisors can only act if they see flagrant violations of guidelines, rules, and laws. But Bafin’s refusal to even entertain some of the allegations of Wirecard – which emerged as early 2015, thanks to investigative reporting in the «Financial Times» – is a particularly poor example. To Finma’s credit, CEO Mark Branson is an ex-banker who knows how the industry thinks and acts.
More importantly, the British-Swiss citizen is impeccably connected internationally: he runs the Financial Stability Board’s ReSG, or Resolution Steering Group, and he’s also part of a team of central bank and regulatory heads (GHOS). His counterpart in Bonn, Felix Hufeld, has scant industry experience and is more Europe-centric in his activities outside Bafin.
Swiss Fault-Lines
This is not to say Finma has no fault-lines: Switzerland continues to turn up at the center of huge international graft scandals like 1MDB, Petrobras, and FIFA. An embarrassing vacuum is opening up in an anti-money laundering office, and Finma is hamstrung to do much about Saudi Arabian or Lebanese money which made its way to Switzerland.
Finma was eerily absent in the 2018 whistleblowing scandal around GAM, led by the U.K. Financial Conduct Authority. It bizarrely failed to name the ex-CEO of a Swiss bank who is now under criminal investigation for alleged insider trading.
And Branson, like most regulators, spends a fair amount of time lobbying to fight for resources and more recently even to keep the authority Finma does have. But it is hard to conceive that Bern would have looked on at a Helvetic version of Wirecard for more than five years before at least investigating more thoroughly.
