By Paul J. Davies 

U.K. financial regulators froze the British operations of insolvent German payments group, Wirecard AG, in the latest government effort to contain a $2 billion-plus scandal.

Wirecard Card Solutions, based in Newcastle Upon Tyne in northeast England, can't dispose of any funds or assets, or carry on its normal financial business, the U.K.'s Financial Conduct Authority said Friday.

Wirecard's U.K. business issued prepaid cards and electronic wallets for consumers and other businesses. Customers in the U.K. won't be unable to access money on existing Wirecard prepaid cards or held electronically.

The FCA said that Wirecard's U.K. business wasn't covered by the Financial Services Compensation Scheme, which protects consumers from financial businesses that go bad.

A Wirecard spokesman didn't immediately respond to a request for comment.

Wirecard's prepaid card service was an add on to its main business providing software and terminals that collect credit-card payments for retailers in stores and online.

Prepaid cards store a set amount of value and can be used for shopping like credit cards. They are used as gift cards. Some employers distribute prepaid cards as incentive bonuses for workers. They can also be used by people without bank accounts or as a type of modern travelers check.

In 2017, Wirecard purchased Citigroup's U.S. prepaid card business for an undisclosed sum.

Wirecard shares crashed after auditors revealed a $2 billion hole in its accounts June 18. The company filed for insolvency in Germany on Thursday. Its market capitalization plunged to EUR250 million ($280 million) from nearly EUR13 billion last week.

It didn't appear that Wirecard's troubles were rippling through the wider payments industry. Though it counted hundreds of companies as partners and customers, many are likely to have backup payment processing providers.

It is also possible that Wirecard's legitimate business was smaller than it appeared. The company's auditor Ernst & Young GMBH said Thursday there were "clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception."

German financial regulator BaFin said Thursday it had appointed a special representative to oversee Wirecard Bank, a company subsidiary that had EUR1.7 billion in deposits and wasn't part of the wider insolvency proceedings. The company faces ongoing government investigations in Germany, Singapore and the Philippines.

German prosecutors arrested the former chief executive, Markus Braun, alleging he helped the company generate fake revenue and profit. He was released on bail Tuesday. His lawyer didn't respond to requests for comment.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

June 26, 2020 09:22 ET (13:22 GMT)