Brussels said on Friday it is investigating whether Germany’s financial regulator BaFin broke EU law in its dealings with the bankrupt tech company Wirecard.
The German payments company collapsed on Thursday amid a major accounting scandal that has seen a €1.9 billion hole in its books.
Wirecard's former chief executive Markus Braun resigned last Friday and was arrested days later on suspicion of inflating the company's finances to make them appear healthier to investors and customers.
Germany’s financial regulator BaFin is being investigated for its role in the saga.
The European Commission has asked the European Securities and Markets Authority (ESMA) to carry out a "fact-finding analysis".
"The preliminary analysis should seek to establish a comprehensive description and assessment of the events, including the adequacy of the supervisory response to these events, leading to the collapse of Wirecard AG," wrote the commission's financial stability director John Berrigan in a letter to the ESMA seen by AFP news agency.
The company filed for insolvency at a Munich court on Thursday and said its survival was "not assured" with €1.3 billion of loans due next week.
The firm's creditors stand to lose billions of euros from the scandal.
Shares in the company have shed as much as 90% in a week.
The implosion happened days after auditor EY refused to sign off on Wirecard's 2019 accounts, which led to Braun admitting the missing €1.9 billion did not exist.
“There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world,” EY said in a statement on Thursday.
The darling of fintech
Braun, who was released from custody on bail of 5 million euros, suggested that Wirecard may itself be the victim of fraud.
The German firm was once regarded as a darling of the growing financial technology sector and had stretched its presence to Asia and North America.
Wirecard provides the technology to companies and consumers to make cashless payments, a growing and competitive market globally.
But the company became the subject of multiple Financial Times reports about accounting irregularities in its Asian operations. Wirecard disputes the reports, which date back to February 2019.