Chancellor Angela Merkel's conservatives and the co-governing Social Democrats (SPD) agreed to extend the powers of the BaFin watchdog to include the right to get information from third parties and conduct forensic investigations itself.

The new rules also give BaFin the right to inform the public at an earlier stage about its actions on balance sheet control.

To avoid conflict of interest, the government wants to strengthen the independence of auditors by introducing a duty to rotate external auditors every 10 years at the latest. Berlin also sharpened legislation so that auditors can be made liable in civil law suits more easily in case of misconduct.

Wirecard's demise has embarrassed Germany, which prides itself on a reputation for rectitude and reliability, amid criticism that authorities ignored red flags.

Lawmakers have launched a parliamentary inquiry in an effort to force the government to reveal more about the failure to avert Germany's biggest post-war corporate fraud, pressuring Finance Minister Olaf Scholz, who is the SPD candidate to replace Merkel in next year's federal election.

The investigation into the implosion of a company once seen as a German success story worth $28 billion is also increasing pressure on Merkel's conservatives, who traditionally have close ties to the private sector and auditing firms, ahead of national elections next year.

(Reporting by Michael Nienaber. Editing by Mark Potter)