20200701 Wirecard : the FCA’s freezing of assets.

The first question was why, even if there was good reason for it, was it done without notice, especially on a Friday just before the phones are turned off for the weekend at the FCA?

The answer to that is simple: it’s how it’s done. All over the world, regulators issue notices at close of business before a weekend or public holiday.

All over the world, insolvencies are launched at the same time or, in the case of listed companies, in the minutes before markets open on the day after a weekend or public holiday so that shares can be suspended before their value is wiped out.

One might ask why and the answer is that if the purpose is rescue – through administration or some other method – the last thing anyone wants is a knee-jerk reaction that destroys share values.

In the case of the Friday-night announcement, it’s so that those involved can work over a weekend in relative isolation.

In this case it was without regard to the fact that while counter-services may be closed, financial services is now, in many cases, the business that never sleeps.

Or that sleeps when it’s dead.

Not that that helps customers who, in the absence of a bank account, use a pre-paid card as a form of current account. They don’t know if their salaries or other payments upon which they depend have been credited and they cannot do, as many do, their financial transactions such as paying rent at weekends.

The second question, from outside the immediate circle dealing with the regulatory issue, was “how quickly can we get cards back on-line?”

It might sound contrary to good sense, but in fact, freezing the assets, while it caused hardship for a few days (actually three and a half) was in fact in the best interests of Wirecard’s customers in the UK.

And customers in the UK are those that, ultimately, the FCA is bound to protect.

The reasons for that are

a) the failure of regulators (and the EU has to take the brickbats in this case) to put in place adequate measures to protect deposits; and

b) as a result of that, no one outside Wirecard knew where those deposits were.

I could go down the rabbit hole of how deeply flawed EU regulation is, being obsessed with detailed rules for the present but not thinking of what can go wrong in the future.

But I won’t. I’ll just mention in passing that the UK’s electronic money regulation is designed in the EU and because of freedom of movement of capital and so-called “passporting” (which means that a business regulated in one EU state can operate in another state under the same regulatory regime), the Financial Conduct Authority is under restrictions as to what it can do; even if it identifies potential problems, it cannot impose risk management upon companies that are regulated in another state.

Here, Wirecard Card Services Limited was regulated in the UK and, arguably, the UK could have required measures going beyond the EU norms – but to do so would inevitably lead to an exodus of such businesses which would then do business in the UK from offshore as passported organisations.