European Compliance Mess – A challenging week for BaFin and MFSA

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Disclaimer: All information disclosed in this report pertains to persons of public interest and activities related to their offices. Senior employees of regulators are, by definition, persons of public interest and therefore must also face public criticism.

It has not been an easy week for EU regulators. At least not for the German BaFin and the Maltese MFSA. At BaFin, President Felix Hufeld and Vice President Elisabeth Roegele had to resign because of the Wirecard scandal. Germany’s Finance Minister Olaf Scholz wants to make a fresh start. In Malta, former CEO Joe Cuschieri and his longtime confidant and MFSA General Counsel Edwina Licari are involved in compliance issues. They have let themselves be invited to Las Vegas by Yorgen Fenech. Fenech is said to be the mastermind behind the murder of investigative blogger Daphne Caruana Galizia and suspected of bribing members of the former Maltese government (Wikipedia).

In the Wirecard case, the head of the German auditor regulator APAS, Ralf Bose, also had to resign from his post. Like some BaFin employees, he speculated with Wirecard shares while BaFin was supposed to be investigating the company. APAS supervises auditors in Germany. In the Wirecard case, auditors from EY had approved balance sheets for years and faced accusations of not looking closely enough. Neither did BaFin.

FinTelegram reports on Paytah.

In the case of MFSA with Joe Cuschieri and Edwina Licari, discussions are still ongoing. While Cuschieri voluntarily resigned, Licari is still in office (see MFSA website profile). The actual dimension of Cuschieri’s involvement – he was head of the Malta Gaming Authority (MGA), which was responsible for Fenech’s companies, before the MFSA – is not yet foreseeable, sources in Malta tell us. Revelations and political reactions are still to be expected here.

The two cases BaFin and MFSA, expose a shocking morality of regulators. It also perfectly shows what impact such a compliance mess can have. The neglect of supervision leads to alleged fraud cases such as Wirecard or Paytah, respectively.

Like Wirecard Paytah, a brand of the MFSA-regulated Phoenix Payments Ltd has facilitated broker scams that defrauded hundreds if not thousands of EU consumers. The fraud case has been brought to the attention of MFSA, but so far, no action has followed to help the victims recover their funds.

Sources: Financial Times, Reuters, Bloomberg, FinTelegram Research

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