Deutsche Bank Moscow probe spreads to UK

The UK financial watchdog is in the early stages of an investigation into whether Deutsche Bank breached anti money-laundering laws for its Moscow clients, adding an extra flank to a burgeoning international probe.

The Financial Conduct Authority’s involvement adds to inquiries by at least two other bodies around the world into so-called mirror trades executed in London and Moscow by the bank. New York’s banking regulator asked Deutsche for information about a failed offer to bribe a Moscow employee as part of its investigation.

The FCA’s attention — which was sparked by Deutsche Bank itself reporting the matter to both the UK watchdog and its German equivalent, BaFin — is at an early stage. The bank remains under so-called “special measures” instigated by the FCA after a slew of regulatory issues, including the Libor-rigging scandal.

Deutsche Bank, the FCA and BaFin declined to comment.

Deutsche Bank

The matter also has the potential to morph into a criminal investigation as it is on the radar of criminal prosecutors at the UK’s Serious Fraud Office, which said it was aware of the allegations. It declined to comment further.

The trades under scrutiny by the FCA first came to light following a request from the Russian central bank late last year. Deutsche Bank then undertook an internal probe looking at trades carried out over a period of four years ending in early 2015. Last month it said it had placed several individuals from its Moscow unit on leave.

The trades in question involve securities bought in roubles through Deutsche Bank in Moscow by Russian clients, at the same time the bank bought the same securities in western currencies from various entities through its London business.

The practice is known as mirror trades and regulators are concerned that it could be used by Russian clients to bypass money-laundering rules to illegally move funds out of the country. They are also scrutinising how quickly Deutsche Bank reported the suspicious trades.

The matter is yet another conduct issue with which John Cryan, who took over as chief executive this month, must grapple.

The bank paid a record $2.5bn to US and UK regulators in April to settle allegations that its traders manipulated the Libor rate. Nearly half of the FCA’s £227m portion of that fine included a penalty for misleading the regulator.

Meanwhile, a BaFin report into Libor-rigging found that Deutsche Bank’s senior management allegedly acted negligently, and its former co-head Anshu Jain may have knowingly misled the German central bank — allegations Mr Jain and the bank strenuously deny.

BaFin is due to make its final determinations on potential supervisory measures following Deutsche Bank’s formal response to its report.

FCA publishes final rules to make those in the banking sector more accountable

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have today published the final rules confirming the approach to improving individual accountability in the banking sector. The final rules cover the Senior Managers Regime; the Certification Regime; and new Conduct Rules.

Today’s publication follows joint FCA-PRA final rules on variable remuneration (e.g. bonuses) in banks, building societies, and PRA-designated investment firms, which were released in June.

Martin Wheatley, Financial Conduct Authority chief executive, commented:
 "Today we have given clarity on rules that will embed personal accountability into the culture of The City. New conduct rules will add further momentum to improving standards across the industry."

In June 2013, the Parliamentary Commission for Banking Standards (PCBS) published its report "Changing Banking for Good", setting out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013 to replace the Approved Persons Regime for banks, building societies, credit unions and PRA-designated investment firms with a new regulatory framework for individuals.

banking standards

While the Senior Managers Regime will ensure that senior managers can be held accountable for any misconduct that falls within their areas of responsibilities, the new Certification Regime and Conduct Rules aim to hold individuals working at all levels in banking to appropriate standards of conduct.

In publishing the final rules, we are providing information needed by firms as they make progress with their preparations for the new regime. In particular:

• The Senior Managers Regime focuses on individuals who hold key roles and responsibilities in relevant firms. Preparations for the new regime will involve allocating and mapping out responsibilities and preparing Statements of Responsibilities for individuals carrying out Senior Management Functions (SMFs). While individuals who fall under this regime will continue to be pre-approved by regulators, firms will also be legally required to ensure that they have procedures in place to assess their fitness and propriety before applying for approval and at least annually afterwards. 
• The Certification Regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers (for example, staff who give investment advice or submit to benchmarks). These staff will not be pre-approved by regulators and firms’ preparations will need to include putting in place procedures for assessing for themselves the fitness and propriety of staff, for which they will be accountable to the regulators. These preparations will be important not only when recruiting for roles that come under the Certification Regime but when reassessing each year the fitness and propriety of staff who are subject to the regime. 
• The Conduct Rules set out a basic standard for behaviour that all those covered by the new regimes will be expected meet. Firms’ preparations will need to include ensuring that staff who will be subject to the new rules are aware of the conduct rules and how they apply to them. Individuals subject to either the SMR or the Certification Regime will be subject to Conduct Rules from the commencement of the new regime on 7th March 2016, while firms will have a year after commencement to prepare for the wider application of the Conduct Rules to other staff. 

The FCA is today also consulting on amendments to the rules in regard to the certification of individuals involved in wholesale activity, such as traders. The change is designed to expand the certification regime to ensure that individuals working in wholesale markets in relevant firms who could pose significant harm to the firm or its customers are subject to the new accountability rules.