By Jan Strupczewski and Huw Jones
BRUSSELS/LONDON (Reuters) - The European Union is investigating Germany's financial regulator over the collapse of payments company Wirecard in a rare move that heaps embarrassment on Berlin days before it is due to take over the EU's rotating presidency.
Wirecard's implosion on Thursday, owing creditors almost $4 billion, is shaping up to be one of Germany’s biggest corporate scandals, and regulator BaFin has come under fire at home and abroad for not spotting problems sooner.
The European Commission has asked the EU's markets watchdog to assess if BaFin's responses to allegations of improprieties at Wirecard, which stretch back years, were adequate to protect investor confidence in EU markets, according to a letter from the Commission to the EU watchdog.
News of the letter, seen by Reuters, came as the Philippines justice minister said Wirecard's former operations chief, under suspicion in Germany over the accounting scandal, was in the Philippines this week, but had left for China.
Separately, German magazine Der Spiegel reported that Japanese investor SoftBank was planning to sue Wirecard's long-time auditor EY over the scandal. EY declined to comment and SoftBank had no immediate comment.
Wirecard, which disclosed a $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.
EY said the hole in the company's books was the result of a sophisticated global fraud.
Auditors KPMG said in a review published in April it was unable to verify 1 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 its letter to the European Securities and Markets Authority (ESMA), the European Commission asked ESMA to undertake a "fact-finding analysis" into BaFin's response to the allegations and report back no later than July 15.
It also asked ESMA to assess if there was any evidence of "administrative or legal obstacles" that hampered the enforcement of reporting requirements.
Germany will take the EU's rotating presidency on July 1.
Allegations of financial impropriety have swirled around Wirecard for years and its implosion has triggered calls for an overhaul of corporate supervision. BaFin boss Felix Hufeld has described the scandal as a "total disaster".
BaFin could not immediately be reached for comment on Friday.
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 (FCA) said on Friday it had 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 authorised 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.