Deutsche Bank Fined by Fed Over Lack of Controls

The Federal Reserve has announced two enforcement actions
against Deutsche Bank that require the bank to pay a combined $156.6 million
in civil monetary penalties.

The bank will pay a $136.9 million fine for “unsafe and
unsound practices” in the FX markets between 2009 and 2013, as well as a $19.7 million fine for
failure to maintain an adequate Volcker Rule compliance programme prior to
March 30, 2016.

The Fed says it found deficiencies in Deutsche’s
oversight of, and internal controls over, FX traders and that the firm failed
to detect and address that its traders used electronic chat rooms to
communicate with competitors about their trading positions.

In its finding, the Fed says that Deutsche’s FX traders “routinely”
communicated with traders at other financial institutions through chat rooms on
electronic messaging platforms accessible by traders at multiple institutions,
and that the bank’s deficient policies and procedures prevented it from
detecting and addressing unsafe and unsound conduct by certain of its FX
traders, including the aforementioned chat room communications.

It adds that these included disclosures of trading positions
and, on some occasions, discussions of coordinated trading strategies with
traders of other institutions. Deutsche’s traders also held discussions about
possible FX benchmark Fix-related trading with traders of other institutions
and made attempts to influence contributions to submission-based FX benchmarks
in certain emerging market currencies.

The Fed also says that the investigations uncovered
discussions by a Deutsche Bank trader with traders of other institutions regarding
bid/offer spreads offered to NDF customers in an emerging market currency and separate
discussions on trading in a manner to trigger or defend certain FX barrier
options within Deutsche Bank.

The Fed’s order requires Deutsche Bank to improve its senior
management oversight and controls relating to the firm’s FX trading. It is also
required to cooperate in any investigation of the individuals involved in the
conduct underlying the FX enforcement action and is prohibited from
re-employing or otherwise engaging individuals who were involved in this
conduct.

Separately, the Fed says it found gaps in key aspects of
Deutsche Bank’s compliance programme for the Volcker rule, which generally
prohibits insured depository institutions and any company affiliated with an
insured depository institution from engaging in proprietary trading and from
acquiring or retaining ownership interests in, sponsoring, or having certain
relationships with a hedge fund or private equity fund.

Specifically, the Fed says it found that Deutsche failed to
properly undertake certain required analyses concerning its permitted
market making related activities. The consent order requires the bank to
improve its senior management oversight and controls relating to the firm’s
compliance with Volcker Rule requirements.

In levying the fine, the Fed notes that Deutsche has fully
cooperated with the Board of Governors and the Federal Reserve Bank and has
made and continues to make progress in implementing enhancements to its
firm-wide compliance systems and controls that are designed to address
deficiencies in its FX activities.

Colin_lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

 

Colin Lambert

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