Financial regulation could be reviewed in Germany, Malaysia learns to love distance, the UK strikes out alone and Panama’s former presidents are in a heap of trouble.

We share our financial regulatory highlights from the week of 6 July 2020.

Regulatory Overhaul in Germany

Wirecard, previously embraced by the fintech community, has seen a rapid fall from grace. Having lost $2 billion, and with debts of approximately $3.5 billion, the business has gone into insolvency. The payment processor held value as the only German payment company with a banking license and able to operate at a global level.

The Wirecard scandal has been far reaching. The missing $2 billion, which may never have existed in the first place, saw the payment processor suspended from activity in the UK – sending the UK fintech sector into disarray – as well as resulting in the arrest of Wirecard’s CEO and another executive.

The fallout from the scandal could see sweeping regulatory change happen across Germany. The first changes are already being discussed.

BaFin has faced heavy criticism in the wake of the scandal, however, the regulator has been hampered by the rules set in place by German legislation. BaFin was unable to investigate Wirecard effectively due to the two-stage examination procedure. Under the current system, BaFin may only intervene when red flags are raised during an initial audit by a private monitoring body, in this case, EY.

German Finance Minister, Olaf Scholz, is arguing that the two-stage procedure should be abolished and that BaFin should be given “more control rights over financial reports, regardless of whether the company has a banking division or not.” A move that would give BaFin the powers it requires to more effectively spot threats in the sector as they develop.

If this comes into play in Germany then at the very least businesses will have to become much more rigorous in how they document internal money movement. It’s likely that audits will become far more invasive than they have been in the past with a greater administrative element than before.

eKYC in Malaysia

Bank Negara Malaysia, the nation’s central bank, has recently issued policy guidance on electronic know your customer (eKYC) measures.

The move has come as part of Malaysia’s push towards digital transformation and to reduce costs for financial institutions (FIs) in identifying and onboarding customers while also reducing risk. It’s also part of a broader push for the boards of FIs to become more involved in their AML/CFT obligations that began at the start of 2020.

The policy calls for biometrics and has a swathe of requirements. The central bank does not usually issue guidance alongside policy but even when it comes, to avoid damage to digitalization projects, FIs should be looking to work with third parties who are proven in the field on onboarding customers digitally.

Malaysia’s central bank also dictates the penalties for failing to comply with the policy effectively: FIs unable to meet all of the requirements may face an end to their eKYC capability. There’s no pecuniary penalty for failure listed in the policy but being unable to carry out eKYC would seriously hamper any FIs digital transformation project.

UK Sanctions Alone for the First Time

FIs have yet another data source to keep in mind now that the UK has launched its own sanctions list for the first time.

Part of the fallout surrounding Brexit, the UK is now free from the constraints of the EU and able to sanction individuals and entities that it sees fit to target. In a move that will align the UK with the US, sanctions have been enacted against those implicated in the death of Russian lawyer Sergei Magnitsky.

25 Russian nationals associated with his death in 2009 will have their UK assets frozen and be banned from entering the country. This follows suit with the US Magnistky Act, which was a bipartisan bill signed into law in 2012. Russia has threatened reciprocal measures and has called the sanctions pointless.

However, the new UK sanctions do not stop with Russia. The list also includes 20 Saudi nationals involved in the death of journalist Jamal Khashoggi in the Saudi consulate in Istanbul, two high-ranking Myanmar military generals involved in the racial violence against the Rohingya people and other ethnic minorities and two organizations involved in forced labor, torture and murder in North Korea’s camps.

This marks the first wave of UK sanctions, there are sure to be many more entities added to the list in the near future. It’ll be interesting to see if the sanctions list is able to get support or traction from other countries or supranational bodies and what impact if any, it’ll have on the UK’s trade relationship once it fully disentangles from the EU.

Former Panamanian Presidents Under Investigation

Ex-presidents Ricardo Martinelli and Juan Carlos Varella are wanted for questioning by prosecutors in Panama over their alleged involvement in two separate corruption and money laundering probes.

Martinelli, who occupied the presidency from 2009-2014, has been accused of using funds from the government coffers while in office to purchase a publishing company (known as the “New Business” case). The former president has denied the charges, maintaining that he is a “victim of political persecution.”

This isn’t the first time Martinelli has been accused of corruption. Eight months ago he was cleared of spying on political opponents and journalists — a charge that saw him extradited from the US in 2018 and held in pre-trial detention in Panama for two years before his eventual acquittal.

The vice president of Panama under Martinelli and his successor to the presidency, Juan Carlos Varella, is also under investigation for his suspected involvement with Odebrecht — a Brazilian construction company involved in a far-reaching and ongoing bribery investigation that has ensnared several public officials throughout Latin America.

Varella allegedly received illegal campaign donations from Odebrecht during his vice-presidential run in 2009, but the former president has maintained that those were legitimate.

On a separate but related note, two of Ricardo Martinelli’s sons were arrested in Guatemala City on Monday, July 6, and charged by US prosecutors for their alleged involvement in the Odebrecht scandal. Luis Enrique Martinelli and Ricardo Alberto Martinelli are suspected of facilitating bribe payments totaling about $28 million from Odebrecht to a public official, by way of bank accounts registered to shell companies. They are currently facing extradition to the US.


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