Farage was referred to the Parliamentary Commissioner for Standards, Daniel Greenberg, over the undeclared gift from Thailand-based cryptocurrency investor, Christopher Harborne, which he received in 2024.
The Reform leader has previously insisted there is "no case to answer" over the gift, which he said was not connected to his political activity and was needed to pay for private security for the rest of his life.
He is reported to have received the money in 2024 before he announced he would stand in Clacton at that year's general election.
The Press Association understands the commissioner has opened an investigation under rule five of the MPs' code of conduct, which specifies new MPs should register relevant financial interests received in the 12 months before their election within one month of entering Parliament.
A Reform UK spokesman confirmed that Farage's office is in communication with the Parliamentary Commissioner for Standards.
"He has always been clear that this was a personal, unconditional gift and no rules were broken," the spokesman said.
"We look forward to this being put to bed once and for all."
Harborne has separately donated millions to Reform, including a £9 million ($A17 million) donation in August 2025 – the biggest single donation in history to a political party from a living person.
"Nigel Farage has been avoiding legitimate questions since news of his billionaire backer's gift," Labour Party chairwoman Anna Turley said.
"It's right that he faces a proper investigation."
A Conservative Party spokesman characterised it as an "enormous amount" and more than most people will earn in a lifetime.
Nigel Farage needs to explain how he got it, why he got it, and why he didn't declare it," the spokesman said.
"If there is a simple answer, then he should welcome these investigations. But like so often with Reform, there is something very fishy about the whole story."
On Sunday, Reform's deputy leader Richard Tice said the £5 million ($A9.3 million) was "probably not enough" to keep Farage safe.
"The rules are very clear and Nigel has complied with the rules," he told the BBC.
Pressed on whether any of the cash was spent on other political activity, Tice said: "Nigel's safety and security is absolutely paramount".
He added it was "a personal gift based around safety and security".
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