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The long shadow of Wirecard – The introduction of FISG


A little more than a year ago, the Wirecard scandal shook the capital market. In order to restore confidence in the German capital market and to prevent balance sheet manipulation, the German legislator passed swiftly the Act to Strengthen Financial Market Integrity, or FISG for short. FISG came into force on 1 July 2021.

This article provides a brief overview of FISG and, in particular, addresses the enhanced internal governance of listed companies.



The provisions of FISG apply exclusively to listed companies, i.e. all companies whose shares are admitted to trading on a regulated market. Companies whose shares are traded over-the-counter are not covered by the new regulations.

To prevent balance sheet manipulation in the future, FISG introduces regulations aimed at various bodies of companies dealing with annual financial statements. These are, within the framework of internal governance, the management board and the supervisory board of the company as well as the auditors appointed to audit the annual financial statements, as part of external governance.

In order to enhance external governance, FISG introduces some regulations that are intended to increase the independence of auditors from the company being audited, such as:

  • Increased professional scepticism in audits
  • Increased liability of auditors
  • Limitation of the possibility of advising and auditing PIEs (public interest entities).


Internal control system

Following the introduction of Article 91 (3) of the German Stock Corporation Act (AktG), management boards of listed companies are now legally required to set up an internal control system (ICS) and a risk management system (RMS). The ICS and RMS must be effective and appropriate to the scope of business activities and the risk situation of the company.

Previously, management boards were free to decide whether and how to implement an ICS and an RMS. Although the German Corporate Governance Code (DCGK) included a corresponding recommendation to implement such systems, there was no obligation to follow it.

This freedom of the management board has now been limited by FISG to the effect that it is free to decide only on how to structure the ICS and RMS.

In specific terms, in order to avoid liability, this means for management boards of listed companies: they are required to implement an ICS and RMS and to provide evidence that, when designing the ICS and RMS, the principles of the Business Judgement Rule have been observed with regard to the business activity and the risk situation of the company.


Supervisory Board

FISG has strengthened the role of the supervisory board in the process of approving annual financial statements. This is to be achieved, on the one hand, by the introduction of new requirements regarding the expertise of the supervisory board members, and on the other hand, by the extension of the supervisory board's competences.

Until now, the supervisory board had the freedom to decide whether it formed an audit committee to exclusively deal with audit-related issues. Especially smaller supervisory boards with three or six members have so far decided not to form an audit committee and fulfilled its tasks incidentally, which is no longer possible now. All supervisory boards of listed companies must now form an audit committee. In this respect, it should be noted that the chair of the supervisory board cannot be the chair of the audit committee at the same time.

Furthermore, every supervisory board of a PIE (public interest entity) will have to appoint one member with expertise in accounting and another member with expertise in auditing. Previously, it was sufficient to have one member with expertise either in accounting or auditing. However, the new regulation does not mean that new supervisory board members must immediately be appointed to fulfil this requirement. It is sufficient to meet this requirement during the next supervisory board elections or the next reappointment of a member.

Finally, the audit committee will in the future have the right to obtain information directly from the heads of company departments dealing with the audit; it will therefore no longer have to request it from the management board. All members of the audit committee will have such right, whereas the members will not contact the company employees for information directly, but rather the chair of the audit committee will gather all questions and forward them to the relevant employees.



Due to the Wirecard scandal, politicians had to react and did respond respectively by introducing FISG. It remains to be seen whether it will effectively eliminate balance sheet manipulation in the future.

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