Wirecard scandal puts audit firms, not fintechs, in hot seat
What is happening is not specifically related to the fintech industry as it was more of a failure on the auditors' part to request important account information
Singapore
THE fraud probes into scandal-hit Wirecard are more likely to put question marks on the strength of the traditional field of auditing, than outrightly tarring the reputation of fintechs, said observers.
That being said, they pointed out that fintechs in Singapore may come under tougher scrutiny as the collapse of Wirecard, a fintech that shot so quickly to scale, has shown how it can cause enough disruption to threaten stability.
"The Wirecard scandal is more likely to hurt the reputation of the accounting firms than of fintechs generally, especially if, as I've read in the reports, there was a failure on the auditors' part to ask very basic questions," TSMP Law joint managing partner Stefanie Yuen-Thio told The Business Times (BT).
The Financial Times earlier reported that Wirecard's auditors EY did not request important account information - deemed a routine part of auditing work - from Singapore bank OCBC, where Wirecard claimed it had up to one billion euros (S$1.57 billion) in cash held.
"What is happening is not specifically related to the fintech industry. It might affect auditing companies and regulators if the investigation unveil some wrongdoings on their side," said Jan Ondrus, a professor at ESSEC Business School (Asia-Pacific).
Investigations into Wirecard's Singapore entities are ongoing.
Forrester analyst Meng Liu told BT that the carelessness or possibly "intentional ignorance" on EY's part signals an industry-wide need to overhaul the current accounting system.
Mr Liu expects technology such as artificial intelligence and blockchain to play a bigger role in auditing.
"This is not only about automation, but also about leveraging machines to prevent fraudulent behaviours driven by greed," he said.
To some extent, Wirecard's downfall is also expected to hurt the credibility of its fintech peers here.
"I imagine there will be a flight to quality as merchants and card issuers use service providers who are tested and reliable," said TSMP's Ms Yuen-Thio.
She noted that digital upstarts may find it harder to raise funds as investors "shy away from what may be considered a riskier play". That said, she sees this as a short-term reaction as the Covid-19 pandemic has accelerated the adoption of e-commerce and contactless payments.
"You need payment systems for those. There's no turning back that clock," said Ms Yuen-Thio.
Overall, fintechs in Singapore must be prepared for tighter regulatory supervision and more stringent checks on their balance sheets.
An industry insider told BT that fintechs and neobanks are currently riding with their "training wheels" off, enjoying lighter regulatory scrutiny than what traditional banks undergo.
"I think there will be questions on fundamentals," he said. In his view, Wirecard had offered loss-making rates to merchants here.
He added: "It's not that difficult to get that revenue. But to buy market share, to window-dress for investors at the expense of profitability - how long can you afford to do that?"
Wirecard's Singapore entities are currently exempted from licensing, though Wirecard has sent a licence application to the Monetary Authority of Singapore (MAS) under the new Payment Services Act.
This new Act is a "much needed" restructuring of the current framework, said TSMP's Ms Yuen Thio.
Observers reckoned that MAS may further tweak existing regulations if needed. "This would help customers and business partners to cultivate trust with fintechs that are regulated by MAS," said ESSEC's Prof Ondrus.
He added: "As long as the legal requirements and compliance are met, there is no reason for the reputation of individual fintechs to be affected."
READ MORE: Singapore Wirecard merchants scramble to jump ship
