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ECB and BaFin have told Deutsche Bank that they are “not satisfied” with its probe into mis-selling of high-risk foreign exchange derivatives in Spain.
Europe’s top banking regulators, ECB (European Central Bank) and the German Watchdog, BaFin have expressed frustration with the probe, code-named “Project Teal.” The project began in H2 of 2019 and is about to be concluded, as per sources.
According to the investigation, Deutsche Bank staff acted disingenuously, breaking EU regulations to sell highly complex foreign exchange derivatives to Spanish SMEs and exploiting flaws in the bank’s control.
However, the regulators rebuked the group over several issues such as methodology shortcomings, the time it took to conduct the investigation and then to prosecute the concerned. The source revealed that one of the points criticised by the regulators was that the bank only scrutinised a limited number of transactions when it checked the quality of internal controls, mentioning that taking a larger sample would be a better approach.
The Bank and regulators declined to comment on this statement from the person familiar with the matter.
Other people familiar with the matter said that after finding misconduct at one desk, the bank widened the probe to other desks. While it covered the flaws in the internal processes, it did not detect those loopholes that the staff had been exploiting on other desks.
Deutsche Bank replaced many people from its management in Spain, including some other senior investment bankers in London, while the other bodies involved, received compliance training and had their bonus cut. Overall, less than 12 people were sanctioned, most for lack of oversight and some for exploiting flawed controls.
Over the previous ten years, Deutsche bank had been rocked by several highly embarrassing cases including, Libor rate-rigging, the mis-selling of mortgage-backed securities & money laundering for Russian oligarchs, dividend tax fraud, exposing the bank in billions of euros in fines and settlements.
However, the Project Teal misconduct, that one London-based desk of the lender’s investment bank as well as a private bank in Spain, was taking place until mid-2019, more than a year after Sewing was named the CEO in April 2018. While Sewing promised to end the scandals and improve the bank’s relationship with the regulatory bodies, the US Department of Justice rebuked it in 2021 for infringing a deferred prosecution agreement. In November, the long-running tussle escalated with the regulatory bodies when BaFin threatened to fine the bank over money laundering controls.