Deutsche Bank will pay a total of $10.3 million to resolve two separate settlements with the Commodity Futures Trading Commission, the agency announced Thursday.
In the first matter, Deutsche Bank must pay a $9 million civil penalty to resolve federal court charges for alleged violations of various swap data reporting and other regulatory violations. In the second matter, Deutsche Bank Securities must pay a $1.25 million civil penalty for engaging in spoofing practices through two of its traders.
In the Deutsche Bank case, District Judge William Pauley III of the U.S. District Court for the Southern District of New York entered a consent order settling the CFTC’s case against Deutsche Bank for “numerous swap data reporting requirements, failures related to supervision of its business continuity and disaster recovery plan, and violations of a 2015 CFTC order,” the CFTC said.
The $9 million civil penalty against Deutsche Bank represents a substantial reduction “based on Deutsche Bank’s cooperation with CFTC staff, which included consenting to a court-appointed monitor upon the filing of the action,” the CFTC said. The consent order further requires Deutsche Bank to comply with the prior CFTC order and prohibits Deutsche Bank from committing future violations of the sections of the Commodity Exchange Act and Commission regulations that Deutsche Bank was found to have violated.
The consent order is the result of a complaint filed in August 2016, following “an unprecedented swap reporting platform outage at Deutsche Bank that began on April 16, 2016. For the next five days, Deutsche Bank was unable to report any swap data for multiple asset classes,” according to the CFTC. The consent order says Deutsche Bank’s efforts to end the system outage exacerbated existing reporting problems and led to the creation of new reporting problems, many of which violated the 2015 order.
Given the extent of the failures, the CFTC requested and Deutsche Bank consented to the appointment of a monitor to facilitate its compliance with its swap data reporting obligations. The consent order finds that for more than two years of the litigation monitorship, the monitor made—and Deutsche Bank implemented—numerous recommendations to remediate issues with Deutsche Bank’s swap data reporting, supervision, and disaster recovery plan.
“This case reaffirms the importance of proper reporting among registered swap dealers,” said CFTC Director of Enforcement James McDonald in a press release. “The Commission has been charged with monitoring and addressing systemic risks in our swaps markets. We can’t fulfill these obligations if we don’t have accurate reporting of the swaps dealing activity of our registrants.”
Deutsche Bank Securities
In the administrative order filing and settling charges issued against Deutsche Bank Securities, the CFTC found that, from at least January 2013 through at least December 2013, Deutsche Bank Securities, by and through the acts of two Tokyo-based traders, engaged in numerous instances of spoofing in the Treasury futures and Eurodollar futures contracts on the Chicago Mercantile Exchange. According to the CFTC, on multiple occasions during this period, one of the Deutsche Bank Securities traders spoofed in the Treasury futures market, while the other spoofed in both the Treasury and Eurodollar futures markets.
“The CFTC is committed to ensuring the integrity of the marketplace,” McDonald said. “This enforcement action is yet another example of the CFTC’s commitment to aggressively prosecute conduct that undermines that integrity.”
From FCPA violations to money-laundering control failures to its improper handling of “pre-released” American Depositary Receipts to other not-so-smart risk management decisions related to its relations with Russian companies and oligarchs, it would appear Deutsche Bank has a long way to go in the enhancement of its risk management and compliance controls.