Adds context in paragraph 2, KPMG response in paragraph 6, Dexus and REST details in paragraphs 14-18

By Christine Chen and Scott Murdoch

SYDNEY, June 5 (Reuters) - Australia's corporate regulator said on Friday it had launched a formal investigation into three KPMG Australia partners linked to whistleblower allegations the accounting firm misused confidential client data to win lucrative audit contracts.

The probe comes as some blue-chip clients and government agencies say they are re-examining their association with the Big Four accounting firm, three years after rival PwC Australia was rocked by a scandal that involved sharing confidential government information with prospective ​clients.

The Australian Securities and Investments Commission said it began a preliminary probe into KPMG in April and moved to a formal investigation after the resignation of the firm's CEO and audit chief last week.

"We have commenced our formal investigation earlier this week and I should also make clear that we have issued multiple compulsory notices throughout that period to KPMG," ASIC Chair Sarah Court told a Senate committee on Friday.

"There are three registered company auditors that are currently within the scope of what we were looking at, but I have to say this is an ever-moving feast at the moment as more information comes our way. So I don't know that will be the end of it."

KPMG declined to comment.

WHISTLEBLOWER ALLEGATIONS

In March, ​Deborah O'Neill, a senator from Australia's ruling Labor party, shared with parliament a whistleblower's allegations of misconduct at KPMG. They included that confidential board papers from real estate company Lendlease LLC.AX were used to support bids for major audit tenders for Westpac WBC.AX, a large bank, and Dexus DXS.AX, a property firm.

KPMG had conducted an internal investigation into the claims but failed to substantiate any misconduct. It has since engaged law firm Allens to conduct a new external investigation.

Court said KPMG partners Paul Rogers and Eileen Hoggett were two of the three auditors the regulator was investigating.

The pair were named by the whistleblower as the lead partners on the Lendlease auditing team who allegedly misused the company's board papers, according to O'Neill. Court did not name the third partner under investigation.

Rogers and Hoggett did not respond immediately to requests for comment via LinkedIn.

KPMG said on Wednesday that Hoggett stepped down from her executive role as chief operating officer but would remain as an audit partner.

Court said she had "deep concerns" over the alleged misconduct but ASIC did not have powers to take action against the firm due to its partnership structure, only individual auditors.

CLIENTS PLACE KPMG UNDER SCRUTINY

The PwC scandal in 2023 prompted a number of public- and private-sector clients to freeze ties with that firm, and there are indications some KPMG clients could respond similarly.

Dexus said this week its 2026 accounts would not be signed off by Hoggett, who had previously audited the firm's financial results.

"We take this matter seriously and are committed to ensuring the integrity and independence of our external auditor arrangements," a Dexus spokesperson said.

REST, a A$105 billion ($74.81 billion) pension fund that uses KPMG as its internal auditor and tax agent, said it had sought clarity from the auditing firm on the unfolding scandal.

"We are concerned by the information in the public arena and we are seeking more information about what has transpired," it said in a statement.

ASIC CEO Scott Gregson said the corporate watchdog had sought assurances from KPMG that no partners linked to the scandal were involved with the regulator's own active contracts with the firm.

KPMG ran a whistleblower service for the Reserve Bank of Australia under a contract that cost A$10,000 a year, the central bank's Governor Michele Bullock said on Thursday.

"I don't think we'll be reappointing them to the whistleblower service," she said in a Senate committee hearing.

A separate contract with KPMG for arranging foreign employee recruitment would also be retendered, Bullock said.

($1 = 1.4043 Australian dollars)