A damning report issued Tuesday by the EU’s securities markets regulator found numerous shortcomings in German authorities’ supervision of Wirecard’s financial reporting leading up to its collapse surrounding a $2 billion accounting scandal.

The European Securities and Markets Authority (ESMA) published the results of its peer review focused on the events leading up to Wirecard’s collapse and the supervisory response by both BaFin and the Financial Reporting Enforcement Panel (FREP). The report was prepared in response to a request received from the European Commission in June.

According to ESMA, the review identified “a number of deficiencies, inefficiencies, and legal and procedural impediments” in the areas of “the independence of BaFin from issuers and government; market monitoring by both BaFin and FREP; examination procedures of FREP; and the effectiveness of the supervisory system in the area of financial reporting.”

ESMA’s report offers further detail on each area of shortcoming.

BaFin’s independence from issuers and government: According to the report, “BaFin lacks information about staff holdings in shares and other financial instruments of issuers with securities admitted to trading on regulated markets and does not have in place a declaration of holdings in issuers.” This alleged blind spot “raises doubts on whether BaFin’s internal control system is fully equipped to monitor market abuse / insider trading and conflict of interest with regards to issuers and should be addressed,” the report stated.

The report further pointed to a “heightened risk of influence” by the Ministry of Finance over BaFin’s handling of the Wirecard, “given the frequency and detail of reporting by BaFin, sometimes before actions were taken,” ESMA said.

Market monitoring by both BaFin and FREP: The report highlighted the non-selection (or non-timely selection) of Wirecard’s financial reports for examination based on risks between 2016 and 2018. It goes on to describe several relevant events in the context of the selection and non-selection of Wirecard.

FREP’s examination procedures of Wirecard financial reports: The report also concluded the scope of examinations “did not appropriately address areas material to the business of Wirecard, nor the media and whistleblowing allegations against Wirecard.” Moreover, ESMA said, the analyses performed—level of professional skepticism, timeliness of examination procedures, and assessment of disclosures—as well as their documentation were “insufficient.”

Effectiveness of the supervisory system in the area of financial reporting: Regarding indications of fraud in financial reporting, ESMA said BaFin and FREP “are not aligned in the perception of each other’s role.” Moreover, BaFin was not put in a position “to thoroughly assess FREP’s examinations of Wirecard, which would have enabled BaFin to determine whether it should take over the examinations from FREP.”

According to ESMA, the “strong confidentiality regime, by which both institutions are bound, may have hindered the exchange of relevant information between them and with other relevant bodies.” The report also found instances of “lack of coordination and inefficiency in exchange of information between relevant teams in BaFin.”

In response statements included in the review, BaFin largely sought to clarify its working relationship with FREP, while the latter defended its examination practices. “The findings do not adequately reflect or correspond to the tasks and responsibilities under the legal framework for financial reporting enforcement applicable to FREP, are not supported by the evidence and explanations provided during the review process and are distorted by hindsight bias,” FREP contended.