May 8, 2021

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Head of German accounting supervision resigns following Wirecard

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Germany’s chief accounting officer is to resign amid mounting political pressure over corporate governance flaws exposed by the Wirecard fraud.

Edgar Ernst, chairman of the Financial Reporting Enforcement Panel (FREP), said on Wednesday he would leave by the end of the year. He is the third head of a regulatory body to lose his job in one of Germany’s biggest post-war accounting scandals.

The Wirecard collapse, who last summer filed for insolvency after discovering a € 1.9 billion cash hole, sparked an earthquake in Germany’s financial and political establishment.

Felix Hufeld, chairman of BaFin, tThe financial regulator and its deputy Elisabeth Roegele were expelled by the German government in January for failing to react to the first red flags suggesting misconduct at Wirecard. Ralf Bose, the head of the German auditor supervisor Apas, was fired after revealing that he had traded in Wirecard shares as that authority investigated the company’s auditor, EY. The German government is also working on overhauling the country’s accounting and financial supervision.

Meanwhile, criminal prosecutors in Frankfurt are evaluating a possible criminal investigation into the inner workings of BaFin and on Wednesday asked the market authority to turn over full documents, the prosecutor’s office said to the FT, confirming an earlier report by Handelsblatt. The potential scope of any investigation as well as the people who might be targeted are still unclear. BaFin declined to comment.

Ernst came under pressure when the parliamentary committee of inquiry found out that he had joined the supervisory board of German wholesaler Metro AG in an apparent violation of internal governance rules, which as of 2016 prohibited FREP staff from ” take on new supervisory board roles.

Last week, the former chief financial officer of Deutsche Post filed a legal opinion in parliament defending his decision. He argued that his employment contract was older than the 2016 ban on board seats and therefore outweighed the tightened governance rules.

The German government subsequently threatened to abandon the private sector body which currently has quasi-official powers.

In a statement released Wednesday evening, FREP said Ernst wanted to open the door to a “fresh start” that would not be marred by discussions around the mandates of its supervisory board. “FREP is losing a seasoned financial market expert,” the agency said.



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