What do Wirecard and Neufund have in common?

New discovery: Too much regulation?

A week ago, Neufund announced a strategic realignment of its business activities. One of the main arguments for this change is in the company's own blog addressed: “We worked with the relevant authorities and fully cooperated, but the decision-making process took too long” (Ue.d.A.). Founder Zoe Adamovicz states in an interview with FAS:”[in their] opinion, the regulator is taking such a restrictive approach that soon nothing more will be allowed and no one will do anything about it.” (FAS article, 21.6.2020, “A start-up against Germany”)

Can an interim conclusion therefore be drawn that there is too much or too restrictive regulation?

Wirecard: Too little regulation?

Little remains to be said about the current course of the crash of a former industry leader. We can expect a gruelling review of the events and the search for answers to the question: Which supervisory bodies have failed? Der Spiegel reported as early as mid-Junethat from bank deposits”amounting to a total of 1.9 billion euros, sufficient audit evidence had not yet been obtained“. A Current report from the Tagesschau picks up, for example, at the contracted audit firm”[...] only one employee was involved in the audit“.

Can an interim conclusion therefore be drawn that too little or too inconsistent testing is being carried out?

Regulation: Yes — correctly and securely, thanks to the latest technology!

It is clear that regulation, its implementation and compliance are absolutely necessary. This is where transparent, fully automated technologies such as blockchain provide a decisive advantage. Thanks to the transparent processing of all transactions, it is possible to verify the seamless progress of a digital booking. Equally important is the ability to scale the blockchain; and that in both directions. Whether the regulation imposes very detailed requirements (which, according to Neufund's own statement, is a brake in the speed of innovation) or it is necessary to record large and extensive transaction flows (as existed at Wirecard): Blockchain has an answer to both challenges. After all, once technically illustrated rules — for example using smart contracts — can be used as often as you like and on any scale. This makes it easier both to create and comply with digital frameworks. Once anchored in the system, they represent the guidelines for all parties involved.

So none of this would have happened with blockchain?

No, because the catalyst offered by blockchain technology with its transparency, speed and extensive deployment scenarios is not a panacea per se. Even with a complete image using common cryptocurrencies — such as Bitcoin or Ethereum — Wirecard could have lost 1.9 billion euros. Although their whereabouts would now have been proven: Gone is gone! Even said cryptocurrencies could not protect against incorrect use — or even misuse — and there are enough cases in which digital assets were irretrievably lost (e.g. in one of many cases of a missing laptop).

It depends on the right use

It is important to use blockchain technologies in such a way as to enable implementation as well as continuous verification of compliance with regulations in the financial sector. There are two hemispheres that must be imaged:

1. regulation itself and
2. their compliance control (and correction in the event of a violation of the rules).

The foundations have been laid: The legislator allows financial instruments to be represented using blockchain technology and Germany is playing a pioneering role here compared to other European countries. The integration of the technology into existing laws does not happen overnight and we are currently on a digitization path.

It is important that existing and new laws make extensive use of the technical possibilities offered by blockchain. It is also absolutely necessary to coordinate a controlled approach in the event of a contingency. Despite all the advantages: Even a blockchain will not protect against incorrect programming or harmful use. Just as a law does not prevent the crime or negligence itself, it still provides clarity about how to deal with them retrospectively. The same applies to financial blockchain systems: automated methods in the form of smart contracts, which continuously check the programmed framework conditions and thus enable compliance with highly complex, extensive financial ecosystems, as well as a transparent technical and professional framework that offers legislators the opportunity to correct.