The top European banking regulators told Deutsche Bank that they are not satisfied with the investigation into Spanish mis-spelling of foreign exchange derivatives. Sources briefed on this matter.
BaFin, the German watchdog and European Central Bank expressed their frustration with the probe code-named Project Teal. It began in the second quarter of 2019, and is now about to end, according to people familiar with the matter.
This month’s investigation revealed that Deutsche Bank staff acted dishonestly, exploited weaknesses in bank controls, and violated EU rules to sell complex foreign currency derivatives to small- and medium-sized Spanish businesses.
Regulators criticized the group for a number of issues. These included a lacklustre methodology and the time it took to investigate and punish the suspects. According to a source familiar with the matter, regulators were critical of the fact that the bank only examined a small number of transactions to verify the quality of its internal controls. They also suggested that a larger sample would have been better.
Deutsche Bank, BaFin, and the ECB declined comment.
Deutsche expanded the investigation to include misconduct at other desks after discovering that employees had deliberately manipulated controls. According to sources familiar with the matter, the bank found flaws in its internal processes elsewhere but did not discover that these weaknesses were also exploited by employees at other desks.
According to sources familiar with the matter, Deutsche replaced large portions of its Spanish management and some senior London investment bankers. Other people involved were given compliance training and their bonuses were cut.
Deutsche Bank sanctioned less than 12 individuals, mostly for lack of supervision but also for exploiting bad controls.
Christian Sewing, chief executive of Deutsche Bank, has received negative feedback from regulators about the probe. This could lead to a fine.
Deutsche was exposed to millions of euros in fines and settlements over the past decade due to a series of scandals, including tax fraud, Libor Rate rigging and mis-spelling mortgage-backed securities.
The misconduct in Project Teal that was investigated was occurring up to mid-2019. This was more than a year after Sewing was appointed CEO in April 2018.
Although Sewing promised to end scandals and improve relations with regulators, the US Department of Justice disqualified it in 2021 for violating an agreement to defer prosecution after it revealed a whistleblower complaint about its asset management unit DWS to the US authorities too late. BaFin and Sewing were locked in a long-running dispute over money-laundering controls. In November, the watchdog threatened to penalize the lender if it failed to meet crucial deadlines.