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Wirecard Scandal: EU to review fintech regulation

Earlier this month, the European Commission’s (EC’s) executive vice president announced that ESMA would conduct a review into the regulation of the sector.

European Union officials have suggested that there will be changes in the supervision of fintech firms in the wake of the £1.8 billion accounting scandal at German payments firm Wirecard.

Earlier this month, the European Commission’s (EC’s) executive vice president Valdis Dombrovskis announced that the European Securities and Markets Authority (ESMA), the EU’s financial services regulator would conduct a review into the regulation of the sector.

According to Mobile World Live, of particular concern is a potential grey area in regulation for those firms, such as Wirecard, that start life as non-bank startups but then acquire banking licences and services.
Wirecard began as a company processing electronic payments before acquiring a bank and adopting a hybrid structure.

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“We will assess how to improve the relevant EU rules so this kind of cases can be detected,”

Dombrovskis said in comments reported by Reuters.

The ESMA review, which will look at both the regulations governing banks and fintechs as well as the supervision and enforcement of these rules by regulators, is set to be completed in October said Dombrovskis.

“High-quality financial reporting is core to investor trust in capital markets and Wirecard’s collapse has undermined this trust,” ESMA said in a statement. “Therefore, it is necessary to assess these events to help in restoring investor confidence.”

Possible changes may involve transparency requirements for listed firms as well as accounting rules and market abuse standards. However, as Dombrovskis said, Wirecard appears to have submitted unreliable financial statements to the market, which as put the performance of Germany’s financial watchdog BaFin and the accounting standards body Financial Reporting Enforcement Panel in the spotlight.
Prior to the collapse of Wirecard, the EC had called for public feedback on its digital finance strategy which was designed to explore how best to supervise the rise of non-bank electronic payment processing firms, including the idea that banks and non-banks, also known as ‘critical third-party providers’, should be subject to the same rules and requirements.

It is still to be seen whether governments of African countries would converge on such a regulatory framework for fintechs on the continent as time goes on.