By Andreas Kiler
BERLIN (Dow Jones) – In response to the Wirecard scandal, the Federal Cabinet has launched extensive reform plans for the Bafin financial supervisory authority and the auditing sector. In Berlin, the cabinet passed a draft law to strengthen financial market integration, as announced by the Ministry of Finance and the Ministry of Justice, which had jointly presented the draft. There are plans for “more bite for auditing” and stricter rules for auditors.
“The draft law is a decisive step in order to strengthen the balance sheet control, to reform the auditing and to take stronger action against criminal machinations,” declared Federal Finance Minister Olaf Scholz (SPD). With the law, the government wants to ensure “that one can rely more on the balance sheets and auditors’ certificates.” This will strengthen confidence in the German financial market. “My clear goal remains to implement the reforms in this legislative period,” declared Scholz. Now it’s the turn of the legislature.
According to the information, the Financial Market Integrity Strengthening Act implements the central elements of an action plan previously presented by Scholz to strengthen balance sheet control and financial market supervision. Among other things, a tightening of the balance sheet control procedure is planned. The two-stage balance sheet control procedure, which is geared towards consensual participation by the audited companies, is to be fundamentally reformed. “In the future, there will be a stronger state-sovereign character,” said the ministries.
Bafin will be directly responsible in future
The Federal Financial Supervisory Authority (Bafin) should have more competencies and rights of intervention against companies, including search and seizure rights. According to the plans, the Bafin should in future be directly responsible for cause and suspicion investigations. In addition, within the framework of the balance sheet control, it is to be given the right to information against third parties, the possibility of forensic checks and the right to inform the public earlier than before about its procedure for the balance sheet control.
An auditing agency organized under private law will in future only be responsible for random checks of violations of accounting regulations and will in future be subject to extensive reporting and information obligations to the Bafin. In order to ensure the exchange of information between the authorities and ministries involved, which is necessary for the clarification of suspected accounting violations, confidentiality obligations are also to be lifted “to the necessary extent”.
According to the draft law, the financing of the balance sheet control procedure will also be reorganized: Sample audits are to be financed through apportionment as before – suspicion or cause audits by the Bafin, however, by the companies concerned.
Stricter rules for the final exam are also planned. From now on, a mandatory external review rotation after ten years will also apply to capital market companies. In addition, tax advisory and valuation services should no longer be provided for the same company in addition to the audit.
The auditor’s civil liability towards the audited company is to be tightened. According to the plan, the maximum liability limits will be increased fourfold to 16 million euros when auditing capital market-oriented companies. A maximum liability limit of 4 million is to apply in future for auditing banks and insurance companies that are not oriented towards the capital market. In the event of grossly negligent behavior on the part of the auditor, however, there should no longer be a maximum liability limit in future.
Higher penalties for accounting offenses
Changes are also planned in the area of accounting criminal law. A false “balance sheet oath” by those responsible for the company should in future be punished with up to five instead of the previous three years imprisonment. This also applies to an incorrect attestation from the auditor on the conclusion of a company of public interest.
In accounting offense law, the budget regulations for auditors who examine companies of public interest are to be expanded in terms of content and the budget framework is to be increased significantly from 50,000 euros to up to 5 million euros.
Internal controls in the company are also to be expanded. Listed stock corporations are to be obliged to set up an appropriate and effective internal control system and a corresponding risk management system.
The Bafin is also to be given direct powers to intervene in relation to companies to which essential areas such as banking or IT functions are outsourced. New notification requirements for outsourcing are to be created and an obligation to keep an outsourcing register introduced.
In order to “avoid the appearance of a conflict of interest”, private trading by Bafin employees in financial instruments is also to be largely limited.
To protect investors, business models in which an investment is made in precious metals and a return with interest is paid at the end of the term should be classified as an investment and thus subject to the prospectus requirement in future.
The powers of the stock exchange to sanction Versten are to be flanked by law in order to make sanctions more transparent and effective. For this purpose, the exclusion of issuers from the quality segments of the stock exchange at Versten is to be made easier and the possibility created for the sanctioning measures taken to be published through the stock exchange.
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(END) Dow Jones Newswires
December 16, 2020 05:57 ET (10:57 GMT)