Soft Regulatory Capture and Supervisory Independence: A Case-Study on Wirecard

Buttigieg Christopher P, Witzel Lothar Gustav and Zimmermann Beatriz Brunelli
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Buttigieg Christopher P: Dr. Buttigieg is the Chief Officer responsible for Supervision at the Malta Financial Services Authority (MFSA), a member of the Board of Supervisors of the European Banking Authority and European Securities and Markets Authority (ESMA), was the Chair of the ESMA Data Standing Committee (until December 2022) and is currently the Chair of the ESMA Proportionality and Coordination Committee. He is an Associate Professor in the Banking and Finance Department of the University of Malta and has a PhD in Law Studies focusing on financial regulation from the University of Sussex (UK). The opinions expressed in this paper are those of the authors at the time of writing and do not necessarily reflect those of the MFSA, ESMA or EBA. Any errors or inaccuracies are attributable exclusively to the authors.Malta
Witzel Lothar Gustav: Mr. Lothar Witzel is practicing as a Rechtsanwalt (attorney) admitted to the bar in Berlin and a research associate at the University of Marburg. He studied law in Frankfurt (Oder) and Berlin (First State Examination 2015), followed by his legal clerkship at the Landgericht Cottbus (Second State Examination 2018). He then completed a LL.M. at the University of Malta (2020) and is currently writing his PhD thesis under Prof. Sebastian Omlor, Marburg.Germany
Zimmermann Beatriz Brunelli: Ms. Beatriz Brunelli Zimmermann is an Analyst in the MFSA’s Supervisory ICT Risk and Cybersecurity Function. She is an University of Malta graduate and has obtained a first-class degree in International Relations.Malta

European Company and Financial Law Review, 2023, vol. 20, issue 4, 623-659

Abstract: 623The traditional view on regulatory capture focuses on capture as a distortion of public purpose through a malicious relationship, corruption and possible collusion between the regulator and the industry (hard capture). This paper argues that regulatory capture can arise from political and institutional conditions which do not allow or favour the supervisory independence of authorities from both the industry and the government (soft capture). This paper’s argument is illustrated through a case-study on the German Federal Financial Supervisory Authority’s (BaFin) handlining of the Wirecard AG case. The basis for the analysis are the findings from the Committee of Inquiry of the German Bundestag and the European Securities and Markets Authority (ESMA) Fast Track Peer Review (FTPR) through three lines of inquiry: (1) lack of balance sheet control; (2) the short selling ban; and (3) Wirecard AG’s stock trading by BaFin’s employees. This paper concludes that BaFin was not hard captured in the Wirecard AG case as de facto influence cannot be proven. Instead, its de jure dependency vis-à-vis the MoF (as implicitly endorsed by German law) might have contributed to a case of soft regulatory capture – especially in the aspect of the short selling ban. The paper then analyses the reforms enacted by Germany and promoted by Europe in post-Wirecard case.

Date: 2023
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DOI: 10.1515/ecfr-2023-0025

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