The European Union’s (EU) financial watchdog is set to investigate German regulatory oversight over the collapse of Wirecard.

According to a Financial Times report, the European Securities and Markets Authority (Esma) will assess the conduct of German financial regulator BaFin and FREP, which supervises German companies’ accounts.

The move comes after the German regulators are under increased scrutiny over allegations of lax efforts to supervise Wirecard business.

Last month, the German payments firm filed for insolvency after admitting that €1.9bn had gone missing.

Esma has already submitted a preliminary report to European Commission executive vice-president Valdis Dombrovskis, who earlier called for an unbiased probe.

According to the publication, Esma will utilise peer review approach for the investigation for a detailed assessment of BaFin.

The review is expected to be completed by 30 October 2020.

Additionally, Esma released a two-year old report on regulatory enforcement in seven member states, including Germany.

The report identified four areas in the German enforcement model that required improvement.

It included procedures followed by BaFin and FREP; coordination among them; assessment of companies; and autonomy of FREP.

The Wirecard scandal led to the arrest of its former CEO Markus Braun.

According to the company’s auditors Ernest & Young (EY), Wirecard owes ‎€4bn ($4.5bn) to creditors.

The collapsed firm is also being investigated for fraud, market manipulation and falsifying of accounts.