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UPDATE 1-German watchdog defends Wirecard oversight before lawmakers

(Updates with sources, background)

FRANKFURT/BERLIN, July 1 (Reuters) - The head of Germany’s financial market regulator BaFin, which is under intense scrutiny for its oversight of collapsed Wirecard, defended its record on Wednesday, saying it wasn’t alone in deciding how to categorise the payments provider.

While BaFin regulated Wirecard’s banking subsidiary, the company was never put on a list of financial firms that would have brought it fully under the supervision of BaFin, even though such a move was discussed twice.

BaFin President Felix Hufeld told lawmakers in a closed-door meeting that all decisions about how to categorise Wirecard were made along with other supervisors, including the Bundesbank and the European Central Bank, according to his spokeswoman.

As a financial technology company, albeit one that owned a bank, Wirecard was long considered as being in a grey area when it came to traditional banking supervision.

Hufeld was testifying before lawmakers in the Bundestag’s finance committee.

Three participants said Hufeld told them that the European Central Bank (ECB) was behind a decision not to label Wirecard a financial holding company.

The BaFin spokeswoman said Hufeld did not blame the ECB.

“According to the assessment of all institutions involved, Wirecard was not classified as a financial holding company,” Hufeld’s spokeswoman said he had stressed to lawmakers.

The ECB declined to comment.

Wirecard filed for insolvency last week owing creditors almost $4 billion after disclosing a 1.9 billion euro ($2.1 billion) hole in its accounts that its auditor EY said was the result of a sophisticated global fraud.

In the hours leading up to Hufeld’s testimony, police and public prosecutors raided Wirecard’s headquarters in Munich and four properties in Germany and Austria on Wednesday as they widened their fraud investigation.

Lisa Paus, a member of parliament for the opposition Greens, said BaFin needed a fresh start. “It is still open whether this can be achieved with Mr Hufeld as the head of BaFin.” (Reporting by Christian Kraemer and Hans Seidenstuecker; Writing by Tom Sims; Editing by John O’Donnell and David Clarke)

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