In a large corporation like Deutsche Bank, something always goes wrong, be it that someone sells the wrong investment products to customers or the anti-money laundering protection does not work perfectly. But if rules are violated, then it’s properly dealt with these days – that’s the mantra of the management team around CEO Christian Sewing. The financial house finally learned from the mistakes of the past.
The bank supervisors of the European Central Bank (ECB) now apparently see things differently – specifically, it is about an almost completed investigation by the bank into possibly incorrect financial advice for customers in Spain, which internally bears the project name “Teal”. After SZ-Information, the supervisory authority complained months ago that the bank had not dealt with the allegations sufficiently consistently. The reported on Sunday Financial Times, the supervisors are probably still not satisfied with the internal investigations, which are now nearing completion. It emerged that some FX sales reps in London had been selling derivatives to small and mid-sized Spanish companies knowing the products were too complex for those clients. Apart from that, the controls were also weak. Nonetheless, no one in the management team could be held responsible: Although the bank reportedly parted with high-ranking employees in this connection, it did not find any misconduct and paid severance payments.
Both the ECB and the German financial regulator Bafin have said FT expressed their disappointment at the investigation to the bank. On the one hand, methodological inadequacies were criticized, on the other hand, that the bank would have needed so much time to investigate and sanction the employees. In the top management team, Legal Director Stefan Simon is responsible for the investigation.
The bank has already had to compensate many customers
The business had been going on for many years and probably only ended at the end of 2019 after an internal whistleblower drew attention to it and thus initiated the investigation. Group CEO Christian Sewing was most recently responsible for investment banking on the board, but handed over the department to another board in 2021. The question now is: were the bankers only concerned with their bonuses, or were they also driven by decisions at the top of the group? Sewing’s predecessor, John Cryan wanted the Spain business in 2017 actually sell, which is why the bank may have wanted to “pretty up” the subsidiary at the time, as an insider said: Selling derivatives was the easiest way to achieve the necessary results. However, the bank could not find a buyer and canceled the project.
Deutsche Bank declined to comment on the ECB’s possible concerns, but said it has reviewed parts of its “structured FX derivatives distribution and taken appropriate action. As we and our regulators expect of us, we are improving our processes and strengthening our controls.” “. The ECB declined to comment.
The EU securities directive Mifid, which has been in force since 2018, forces banks to sort their customers into different risk categories depending on their expertise. This determines which products may be sold to this customer. The more inexperienced a customer is, the simpler and more understandable the products must be. In the case of some companies, Deutsche Bank has apparently not adhered to these rules and has already paid an amount in the mid double-digit millions for compensation. One is playing in a different league Lawsuit brought by the Spanish hotel group Palladium, which the institute has sued for 500 million euros in damages for losses with currency derivatives. In this case, however, Deutsche Bank takes the position that Palladium’s management team had sufficient experience with derivatives and was therefore able to assess the risks involved. However, penalties may also follow because the money house could have violated EU rules or banking supervision law.