The Dubai Financial Services Authority has imposed the biggest fine in its ten-year history on Deutsche Bank, the German banking giant.
The fine – which amounts to $8.4m – is for breaches of the DFSA’s rules regarding the bank’s private banking business in Dubai. The fine is the result of a long-running dispute between DFSA and Deutsche relating to events beginning in 2011.
A statement on the DFSA website said the fine had been Imposed for “serious contraventions”.
“Those contraventions include misleading the DFSA, failures in Deuteche Bank’s internal governance and systems and controls and in its client take-on and anti-money laundering processes,” DFSA said.
Deutsche responded in a statement: “The bank is pleased to have reached an agreement with the DFSA and to have resolved this matter. We have reviewed and subsequently upgraded our client on-boarding processes, and we are pleased the DFSA has acknowledged that Deutsche has taken steps to remedy the matters described in the decision notice.”
The bank said that no clients had suffered financial losses as a result of the breaches.
The DFSA said its action follows an investigation into Deutsche’s DIFC operation which focussed on its activities from January 2011 to January 2014.
“The DFSA was initially concerned that Deutsche had failed to properly classify some of its customers as clients under DFSA Rules and, therefore, deprived them of certain protections under the DFSA’s regulatory regime.
“However, over the course of the investigation, it became clear that there were wider failings at Deutsche.
“The DFSA therefore broadened the scope of its investigation. In particular, the DFSA uncovered that Deutsche was aware that its private wealth management business (PWM) was operating in breach of DFSA requirements, but did not take adequate steps to address the issue.
“In addition, certain staff of Deutsche provided false information to the DFSA on several occasions about the nature and scope of activities undertaken.
“The DFSA also found material failings in Deutsche’s governance and has made directions to remediate the DFSA’s concerns.
The DFSA added: “Deutsche agreed to settle the matter following the conclusion of the investigation and the fine was imposed by way of a decision notice agreed with the bank. The DFSA therefore reduced the fine by 20 per cent under its policy for early settlement. Were it not for this discount, the fine imposed on Deutsche would have been $10.5m.”
Ian Johnston, chief executive of the DFSA, said: “The provision of false information to the DFSA is a serious matter. One of the pillars of the DIFC regulatory framework is that authorised persons must deal with the DFSA in an open and co-operative manner and must disclose appropriately any information of which the DFSA would reasonably be expected to be notified.”
“The DFSA expects firms to have governance structures and systems and controls in place which encourage compliance with our rules and which promptly identify and remedy any regulatory failings. As demonstrated by the action against DBDIFC, the DFSA will take a robust stance where firms or individuals have breached these obligations.
“Had Deutsche cooperated at an early stage of the investigation, the matter would have been resolved far sooner and at significantly less costs to both the DFSA and the firm. The fine imposed in this case reflects the seriousness with which the DFSA views these failings.”
A statement from Deutsche Bank said. “The bank is pleased to have reached an agreement with the DFSA and to have resolved this matter. We have reviewed and subsequently upgraded our client on-boarding processes, and we are pleased the DFSA has acknowledged that Deutsche Bank has taken steps to remedy the matters described in the decision notice.
“Deutsche Bank acknowledges the DFSA’s findings related to differences between the on-boarding standards applied in Deutsche’s booking locations outside of the DIFC and the requirements in the DIFC. Clients were on-boarded according to Deutsche Bank’s high standards in its overseas booking locations but without also complying with certain local regulations in the DIFC.
“The DFSA said that Deutsche Bank has taken steps to remedy the shortcomings. The DFSA also noted that its investigation did not find any evidence of financial detriment to customers
“Deutsche is respectful of the DFSA’s role in regulating the DIFC and enforcing compliance with the regulatory framework in the DIFC,” the bank statement said.
But privately Deutche executives are believed to be angry at the level of the fine imposed. They say that no clients lost money as a result of the failed procedures, and that there were no breaches in the bank’s mechanisms in regard to “know your client” or anti-money-laundering requirements.
The fine is the first example of tough DFSA action since the financial limits for fines were lifted last summer.
In 2010 the DFSA fined jewellery retailer Damas for improper use of company funds; in 2008 it fined Shuaa Capital $950,000 for market manipulation.
It is believed other banks are also under investigation by DFSA for breaches of private client banking provisions. Last month, the DFSA announced a probe into the private banking business of ABN Amro, in conjunction with the Dutch central bank.
Regulators have been imposing increasingly tough fines on banks deemed to have breached the rules, especially the the wake of the excesses that led to the global financial crisis of 2009. Between then and 2013 some $166bn had been imposed in fines on banks, mainly by US regulators.
Deutsche is in talk with US and British regulators over a $1.5bn fine they are seeking to impose on the German bank for allegedly manipulating global interest rates.
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