Deutsche Bank investigates whether its staff misappropriated sophisticated investment banking products to customers in breach of EU rules and then teamed up with individuals within these companies to share the profits.
According to people familiar with the process, the internal investigation – codenamed Project Teal – was caused by customer complaints last year. It initially focused on a desk in Spain, which sells hedges, swaps, derivatives and other complex financial products.
The audit found that Deutsche had firmly classified client firms under the Financial Instruments Markets (Mifid) rules. This requires banks to separate their clients according to levels of financial refinement, such as retail investor, professional investor or counterparty, which means another bank or financial institution.
Deutsche believes that some of its staff knowingly sold inappropriate or unsuitable products to customers who may not have understood the risk they were taking with these positions, people say. The German moneylender is not only looking at a few isolated cases, but at a broader pattern of misconduct over a number of years, the people said.
Project Teal is also investigating allegations that there was a collusion between Deutsche employees and staff at some of the customers who purchased the inappropriate products. One proposal under investigation is that the two parties shared a portion of the proceeds of the transactions, the people said.
“We have launched an investigation into our association with a limited number of customers,” the bank said in a statement. “We can not comment on details until all aspects of the investigation have been completed.”
While Project Teal was initially focused on Spain, the scope of the investigation was subsequently extended to the rest of Europe, but it is believed that only customers in Spain and Portugal were affected by this, one of the people said. In the center is one former employee who has already left the bank, the person added.
The investigation leads to a conclusion and the bank will soon have to give final disclosure to regulators about what happened and the measures it plans to take.
The primary regulators of Deutsche, BaFin and the European Central Bank have been informed. Both supervisors declined to comment.
The focus of the Project Teal probe is part of Deutsche’s investment bank, which was the sole driver of the lender’s lucrative growth in the first nine months of 2020. Driven by a global boom in securities trading, the unit’s revenue 35 percent year shot up on year.
Over the past decade, Deutsche has gained notoriety for repeated violations of compliance rules. It has raised billions of euros in fines and settlements for misconduct, including the normalization of interest rates, the sale of toxic mortgage securities and shortcomings due to money laundering.
CEO Christian Sewing, who has been in charge since April 2018, and the board member responsible for the investment bank, have undertaken to improve the money lender’s internal control and compliance functions.
Earlier this month, Deutsche agreed to pay nearly $ 125 million to U.S. authorities to resolve allegations that it violated bribery and fraud laws by using a network of business development consultants to back customers.