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Following the U.K. Financial Conduct Authority (FCA) suspension of business at Wirecard Card Solutions (WCS) in the wake of its German parent's insolvency filing, the FCA reports good progress in meeting conditions for a return to operational activity. Although the freeze was designed to protect consumers and its suddenness presumably to prevent tipping off any fraudsters still employed by Wirecard, customers at all the agent businesses that use WCS to process payments found that payments were blocked and they were unable to access their money. Among U.K. fintech who were likely affected by the freeze were Revolut, Pockit, Soldo, ANNA, Tymit and Curve, although to differing degrees as many including Curve and Revolut had begun migrating away from Wirecard's services. In fact, Curve was already back to normal operations within a business day, although it advised customers to carry another card with them for the next few days. https://www.fca.org.uk/news/news-stories/requirements-imposed-wirecard-authorisation https://www.altfi.com/article/6747_wirecards-uk-activities-frozen-by-the-fca https://www.altfi.com/article/6754_curve-gets-back-online-after-wirecard-outage

The Monetary Authority of Singapore (MAS) said today that Wirecard entities in Singapore have complied with MAS's directions to hold customers' funds in segregated accounts with banks in Singapore. MAS is closely monitoring the operations of Wirecard. Wirecard's primary business activities in Singapore are to process payments for merchants and help companies issue pre-paid cards. Wirecard has informed MAS that it is assessing its ability to continue providing its services in Singapore in light of the filing for insolvency in Germany by its parent company Wirecard AG.

German regulators twice looked into tightening the supervision of collapsed payments firm Wirecard and discussed it with the German and European central banks but no action was taken. In 2017, officials from BaFin and the Bundesbank, considered placing Wirecard on a list of financial companies to supervise but decided against it. In the second half of 2019, there were discussions for months, which involved the European Central Bank (ECB), about putting Wirecard on a watchlist to give authorities more power to investigate it. But the talks dragged into 2020 and were still inconclusive when they were "overtaken by events"!

Wirecard Card Solutions is authorised and supervised by the U.K. Financial Conduct Authority (FCA) to issue e-money and provide payment services including, issuing e-money onto prepaid cards. Wirecard is authorised under the Electronic Money Regulations 2011 (the EMRs) and its activities are also subject to requirements under the Payment Services Regulations 2017 (the PSRs). The Financial Services Compensation Scheme (FSCS) is the U.K.'s statutory deposit insurance and investors compensation scheme for customers of authorised financial services firms. (https://www.fscs.org.uk/) However, FSCS protection does not apply to electronic money or payment services. Under the EMRs and PSRs, there are rules on how customers' money should be protected and these requirements are known as 'safeguarding'. The purpose of safeguarding is to protect and return customer money if a firm was to fail. Wirecard is required under the EMRs to maintain appropriate measures to safeguard customers money. It does this by holding it separate from its own money in accounts with banks (or another credit institution). Adequate safeguarding arrangements which are compliant with the regulatory requirements are a condition of Wirecard's ongoing FCA authorisation.

Wirecard Card Solutions, Wirecard's UK subsidiary, supports a number of crypto cards, among them those issued by TenX and Crypto.com. With most of these cards being rendered unusable by the Wirecard revelations, many of these entities will once again be "looking for alternative solutions to ensure customers can continue using their cards". Whether any other corporate will be as keen to step in to bridge the gap this time around, is harder to determine.

The Wirecard debacle begs fundamental questions about regulation, audit and more. How can BaFin say the bank is fine and not check the balance sheet of the holding company? How would EY sign off accounts for years, without any checks and balances? And how come no one listened to the FT and, instead, took them to court? Another big issue is that the ecosystem model of Banking-as-a-Service could implode because of Wirecard. When you have a company within a company within a company dealing with financial service, and no one can point at which company actually has the money: that's a problem.

The U.K. Financial Conduct Authority (FCA) ordered Wirecard UK to cease all regulated activity after the parent company filed for insolvency in Germany. Wirecard Card Solutions Limited is authorised and supervised by the FCA to issue e-money and provide payment services including, issuing e-money onto prepaid cards. The FCA immediately placed requirements that it should not pay out or reduce any money it holds for its customers except on their instructions.

The UK Financial Conduct Authority forced Wirecard Card Solutions to halt all regulated activity after its German parent company collapsed into insolvency, before lifting the restrictions the following week. However, the move, announced with only a few hours' notice, left millions of customers unable to use payment cards issued by WCS or access cash stored in their accounts. Some of the hardest hit included victims of human trafficking and modern slavery who rely on funds from a government scheme that was an indirect Wirecard customer, according to representatives for these individuals.

The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe.

Wirecard relied on a small number of customers for the majority of its genuine sales, according to an internal company spreadsheet that shows for the first time the real business behind the fintech group's facade. In 2017 Wirecard claimed publicly to serve 33,000 large and medium-sized merchants, and 170,000 small businesses, a global reach that helped make the company an investment sensation. The internal file, entitled "Customer list - Jan-Jun 2017 (global)", suggests Wirecard's customer base was in fact much smaller, and far more lopsided, showing only 100 clients generating the majority of revenues.

The German finance ministry has unveiled a reform of financial regulation in the country in the wake of the Wirecard scandal. The Federal Financial Supervisory Authority (BaFin) will be given further powers, including the right to get information from third parties and conduct ad-hoc and suspicion-based inspections to be financed by the companies concerned. Companies would be obliged to replace their auditor every ten years, and accounting firms to establish a stricter separation between their auditing and consulting services and be subject to higher liability for breaches of duty. https://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Topics/Financial_markets/Articles/2020-10-09-combating-financial-reporting-fraud-strengthening-controls-financial-markets.html

"EY's audits of defunct payments group Wirecard suffered from serious shortcomings over a period of years, a German investigation has found. The Big Four firm is said to have failed to spot fraud risk indicators, did not fully implement professional guidelines and, on key questions, relied on verbal assurances from executives. A special investigator who scrutinised the EY audits came to a damning verdict about the quality of the work, according to people with first-hand knowledge of the report."

The UK Financial Conduct Authority brought forward stronger measures to protect the users of payment cards and digital apps, in the wake of the Wirecard debacle. Under the new guidance, payment providers and e-money issuers must keep up-to-date records of all funds received and maintain a clearly separate "safeguarding account" for customer money. Companies must also be more careful when selecting and appointing third-party service providers.

According to Jan Krahnen and Katja Langenbucher the Wirecard scandal is a wake-up call alerting German politics to the importance of securities market integrity. A fundamental overhaul of the European fragmented securities markets supervisory regime offers the potential to lead to the establishment of an independent European Single Market Supervisor (ESMS). Endowed with strong enforcement powers, and supported by the existing national agencies, the ESMS would be entrusted with ensuring a uniform market standard as to transparency and other issues of market integrity across Europe. This would not rule out maintaining a variety of market organization structures at the national level. The ESMS would need executive powers in the world of markets (i.e. securities and trading), much like the ECB Single Supervisory Mechanism (SSM). To fill this new role, ESMS would have to be established as a new, independent institution, including an enormously scaled up staff compared to the European Securities and Markets Authority (ESMA).

McKinsey warned Wirecard more than a year before the payment group's collapse that it should take "immediate action" to deal with an absence of controls at its largest business. The consultancy told the company in June 2019 that "risks related to business partnerships or third parties" were one of its main vulnerabilities. In August 2019, McKinsey gave a full presentation to the two boards at an off-site meeting in Austria, where it warned that "non-existent" controls over the third-party business had created a "significant risk".

Brussels will call for a probe into whether BaFin, Germany's banking regulator, failed in its supervision of Wirecard, warning that the payment company's collapse poses a threat to investor trust in the EU. Valdis Dombrovskis, the EU's executive vice-president in charge of financial services policy, said the EU should be prepared to pursue a formal investigation into the German regulator for "breach of union law" if the preliminary probe by the European Securities and Markets Authority discovered shortcomings in BaFin's upholding of EU rules on financial reporting.

Wirecard collapsed on Thursday as the once high-flying German payments service provider announced it would file for insolvency following revelations of a multiyear accounting fraud. The Aschheim-based technology company, which a week ago had a market value of €13bn, said in a regulatory statement that it faced "impending insolvency and over-indebtedness".

EY failed for more than three years to request crucial account information from a Singapore bank where Wirecard claimed it had up to €1bn in cash - a routine audit procedure that could have uncovered the vast fraud at the German payments group. EY said that there were "clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception". The company argued that "even the most robust audit procedures may not uncover this kind of fraud".

The U.K. Financial Conduct Authority said Wirecard AG's British unit will be allowed to resume activities after the subsidiary of the troubled German fintech was able to meet "certain" conditions.

EY faced a mounting backlash from investors and German politicians across the political spectrum after it emerged that one of the accountancy firm's own employees flagged potential fraud at Wirecard four years before the company collapsed. German politician warns accountancy firm could face its Arthur Andersen moment.