Deutsche Bank is investigating whether its staff falsely sold sophisticated investment banking products to clients in violation of EU rules and then colluded with people within those companies to share profits.
The internal investigation – codenamed Project Teal – was sparked by customer complaints last year, according to people familiar with the process. He initially focused on a desk in Spain, which sells hedges, swaps, derivatives and other complex financial products.
The audit found that Deutsche misclassified corporate clients according to the rules of the Markets in Financial Instruments Directive (MiFID). These oblige banks to separate their clients according to levels of financial sophistication, such as retail investor, professional investor or counterparty, i.e. another bank or financial institution.
Deutsche believes that some of its staff knowingly sold inappropriate or inappropriate products to customers who may not have been able to understand and assume the risk they were taking with these positions, the people said. people. The German lender is not just looking at a few isolated instances, but what appears to be a broader multi-year fault pattern, the people said.
Project Teal is also investigating allegations that there was collusion between Deutsche employees and the staff of some of the customers who purchased the inappropriate products. One suggestion under consideration is that the two sides shared some of the proceeds from the transactions, the people said.
“We have opened an investigation into our engagement with a limited number of customers,” the bank said in a statement. “We cannot comment on the details until all aspects of the investigation are completed.”
While the Teal project initially focused on Spain, the scope of the investigation was later extended to the rest of Europe, but it is believed that only customers based in Spain and Portugal were affected, said the ‘one of the people. In the center is a former employee who has already left the bank, the person added.
The investigation is drawing to a close, and the bank will soon have to disclose the latest information to regulators on what happened and what action it plans to take.
The main regulators of Deutsche, BaFin and the European Central Bank, have been informed. Both supervisors declined to comment.
The Project Teal probe focuses on Deutsche’s investment banking, which has been the sole driver of the lender’s profit growth in the first nine months of 2020. Supported by a global bond trading boom, earnings from the lender unit grew 35% per year to year.
During the last decade, Deutsche has become renowned for its repeated violations of compliance rules. It has paid out billions of euros in fines and misconduct settlements, including rigging benchmark interest rates, selling toxic mortgage securities, and money laundering loopholes.
Chief Executive Officer Christian Sewing, in charge since April 2018 and director in charge of investment banking, is committed to improving the lender’s internal control and compliance functions.
Earlier this month, Deutsche agreed to pay US authorities nearly $ 125 million to resolve allegations he broke bribery and fraud laws by using a network of business development consultants to channel bribes to clients.