What Wirecard might mean for the FCA (22/127)

This is the latest in the series of daily blogs on financial regulation that I began posting on my first day of Covid wfh, 16 March 2020. I hope you enjoy and find useful...

Since shortly after the Wirecard scandal broke, in early summer 2020, I've worried that its UK relevance has been underestimated.

Not least, this was due to the low level of attention the firm received from being authorised as an e-money issuer. But the FCA's vow to be "curious" should still have prompted questions once the FT's reporting began.

However, it appears from last week's FT article that attempts were made "to get the FCA to investigate claims that (the FT) was involved in trying to manipulate Wirecard’s share price for the benefit of short sellers." This suggests the FCA took an unbalanced approach, focusing on the possibility of share price manipulation rather than the substance of the paper's investigative reporting.

It's worth remembering that the German regulators, where Wirecard was a much bigger player, made the same mistake. But the story still begs some questions...

So, here are a few thoughts about why the FCA might have behaved as it did and what Wirecard might mean for the future:

(1) Perhaps the most salient factor is that supervision of Wirecard and market monitoring (which would have led the manipulation investigation) take place in different divisions. And that communicating between divisions has often been a challenge, tending to rely overmuch on individual relationships and making it hard to join up the dots.

(2) Both areas tend to be very tightly resourced, and once a market investigation began resources will have been targeted in quite a precise way, possibly reducing the chance of a broader review.

(3) Because Wirecard is authorised under the E-Money Directive rather than FSMA, the FCA has fewer regulatory responsibilities and powers. As a result, the regulator typically devotes less attention and resource to such firms, a broader problem. By contrast, the FCA has significant responsibility and powers to tackle market manipulation.

These are all longstanding issues, going back to the FSA. But each has probably become more acute - silos bigger, supervision resources tighter - since the FCA came into being in 2013.

From the limited amount we know, the latest restructuring may be trying to improve some of this. However, the sheer extent of internal change at the FCA could equally make it harder to be curious, to join up the dots.

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