The European Commission in a rare move has asked its markets watchdog to investigate German financial regulator BaFin over the collapse of payments company Wirecard . The company's implosion on Thursday owing creditors almost $4 billion is shaping up to be one of Germany's biggest corporate scandals.

The financial technology company, which disclosed a gaping $2.1 billion hole in its books, is the first member of the DAX stock index to go bust, barely two years after winning a spot among Germany's top 30 listed companies. Wirecard's long-time auditor, EY, said the hole in the company's books was the result of a sophisticated global fraud.

The EU executive said in a letter to the European Securities and Markets Authority (ESMA) that its "fact-finding analysis" should assess if BaFin's responses to allegations of improprieties, and to a critical report from auditors KPMG in April, were adequate to protect investor confidence in EU markets.

KPMG Unable to Verify 1 Billion Euros

Wirecard
Wirecard YouTube grab

KPMG said it was unable to verify one billion euros in cash balances, questioned Wirecard's acquisition accounting and said it could not trace hundreds of millions of euros in cash advances to merchants in a review it published in April. The Commission said it also wants ESMA to assess if there is any evidence of "administrative or legal obstacles" that hampered the enforcement of reporting requirements.

Allegations of financial impropriety have swirled around Wirecard for years and its implosion has triggered calls for an overhaul of corporate supervision and heaped pressure on BaFin boss Felix Hufeld, who has described the scandal as a "total disaster". BaFin could not be reached for immediate comment on Friday.

"At this stage, this preliminary analysis should seek to establish a comprehensive description and assessment of the events," the Commission said in a letter, adding it should be concluded no later than July 15. It said this should include "the adequacy of the supervisory response to these events, leading to the collapse of Wirecard AG."

BaFin Could be Ordered to Make Changes if Any Breach Is Found

ESMA confirmed it had been asked to look at how BaFin enforced the EU's transparency directive which covers financial reporting requirements for listed companies. EU financial services chief Valdis Dombrovskis could use the findings from ESMA's analysis to order a formal "breach of union law" investigation, requiring BaFin to provide information to ESMA.

If a breach is found, BaFin could be ordered by Brussels to make changes to its practices, an embarrassing situation for a national regulator. Separately, Britain's Financial Conduct Authority on Friday said it has imposed a number of requirements on Wirecard, including that it must not dispose of any assets or funds, and not carry out any regulated activities.

Wirecard, which is authorized by the FCA to issue e-money and provide payment services, must also say on its website that it is no longer permitted to conduct any regulated activity.