ECON Committee study points out loopholes in regulation and supervision of Fintech companies
The European Parliament’s (EP) Committee on Economic and Monetary Affairs (ECON) requested a study to evaluate the supervisory implications of the Wirecard case. It focuses mainly on the challenges of fintech supervision but also discusses the audit angle.
The study highlights the regulators’ needs for a deep understanding of fintech’s technologies and business models. The study suggests an approach combining the oversight of both fintech’s entities and activities.
The study also suggests, given the high level of concentration in the market for auditors of large corporations, a bold approach to achieve strong coordination at the European level, including the creation of a new agency responsible for supervision.
ECON Committee study: System of public audit oversight is fragmented and overly complex
The second study ordered by the EP’s ECON Committee focuses on the supervision of auditors. It concludes that the system of national public audit oversight boards (POBSAs) is fragmented and overly complex, characterised by limited responsiveness to red flags and apparent lack of communication. The study says that stronger supervisory coordination and clear action triggers are necessary.
The study brings many recommendations. It advocates, for example, for:
- greater power assigned to the Committee of European Auditing Oversight Bodies (CEAOB)
- harmonisation of supervisory procedures and improvement of the accountability and transparency of mechanisms in place
Other suggestions are made towards international and EU bodies as well as for the POBSA level.
ECON Committee study suggests broad reforms to improve market and institutional oversight for publicly listed firms
The third ECON Committee study discusses the policy implications of the Wirecard case. The study finds that shortcomings in all lines of defence against corporate fraud – including companies’ internal control systems, external auditors, the oversight bodies for financial reporting and auditing and the market supervisor – contributed to the problem and therefore need reform. To improve the system, the study suggests changes at the national as well as the European level.
The authors make suggestions for the market and institutional oversight architecture in Germany and in Europe to ensure market integrity and investor protection in the future.
The study also highlights weaknesses in the audit sector and provides recommendations to help tackle them.
ESMA identifies deficiencies in German supervision of Wirecard’s financial reporting
The European Securities and Markets Authorities’ (ESMA) report focuses on the application of the guidelines on Enforcement of Financial Information (GLEFI) by German Financial Supervisory Authorities BaFin and FREP. It underlines the weaknesses in the German two-tier supervisory system for financial reporting. More specifically, the report identifies deficiencies in relation to:
- the independence of BaFin from issuers and government
- market monitoring by both BaFin and FREP
- examination procedures of FREP
- the effectiveness of the supervisory system for financial reporting
EC issues an Interpretative Communication on preparation, audit and publication of financial statements under ESEF
The European Commission aims to clarify certain existing provisions of Union law about the preparation, auditing and publication of the financial statements drawn-up in accordance with European Single Electronic Format (ESEF) regulation.
The Interpretative Communication contains clarification on Union provisions concerning:
- the use of an e-signature
- issuers’ responsibility and liability
- the use of ESEF files to fulfil other Union obligations
- Officially Appointed Mechanisms
Member State option for a one-year delay in ESEF implementation depends on EP’s position
As informed in our previous Audit Update, the Council of the EU had already adopted its position on delaying ESEF implementation. It noted that Member States should be allowed to postpone the application of ESEF requirements by one year.
The Member State option for a delay now depends on the outcome of the trialogue process whereby the EP and Council will try to reach an agreement.
Legislative proposal for the financial sector includes auditors: Digital Operational Resilience Act (DORA)
With the financial sector making ever-greater use of information and communications technology (ICT), the risk of cyberattacks is increasing. The EU therefore made proposals to update its rules to ensure that financial-sector ICT systems can withstand security threats and that third-party ICT providers are monitored.
Statutory auditors and audit firms are considered as financial entities (like banks and insurance companies) in the context of this proposed legislation and as such will need to comply with the DORA requirements. Compliance with these requirements might be challenging, especially for smaller audit firms.
This proposed regulation is open for feedback until 14 January 2021.