CFTC and FINRA File Charges Against Deutsche Bank Over Swap Data and Information Transmitted Over Squawk Boxes

The U.S. Commodity Futures Trading Commission has filed a civil case against Deutsche Bank AG (DB). According to the regulator, for five days the firm, which is a provisionally registered Swap Dealer, did not report any swap data for a number of asset classes, turned in untimely and unfinished swap information, failed to supervise the staff responsible for the reporting of the swap data, and had an inadequate Business and Continuity and Disaster Recovery Plan.

The bank’s swap data reporting system had suffered a System Outage. The CFTC said that the swap data reported prior to and after the outage showed that there had been ongoing problems with specific data fields and their integrity. As a result, the market data issued to the public was affected. Some of it purportedly continues to be affected to this day. The CFTC said that a reason for the System Outage and the reporting problems is that Deutsche Bank lacked an adequate Business Continuity and Disaster Recovery Plan or another supervisory system that was equally satisfactory.

Earlier this month, the Financial Industry Regulatory Authority fined Deutsche Bank $12.5M for substantive supervisory failures involving trading-related information and research that the firm had issued to employees over internal speakers, also referred to as squawk boxes. The self-regulatory organization said that even though there were red flags related to this matter, Deutsche Bank neglected to set up supervision that was adequate over both the access that registered representatives had to the “squawk,” or “hoots,” which is the information issue through the squawk boxes, and the communication of this data to customers.

FINRA said that Deutsche Bank knew that the hoots might include information that was price-sensitive and confidential and that there could be a chance that material non-public information might be transmitted through the squawk box. Still, contends the SRO, the firm disregarded red flags about its inadequate supervision, including findings and recommendations from internal audits, internal warnings from its compliance department, and risk assessments conducted by the firm.

In addition to paying the $12.5M fine, Deutsche Bank will provide certification in writing of when it puts into place written procedures and supervisory systems about hoots that comply with federal securities laws and FINRA rules. By settling, Deutsche Bank is not admitting or denying the civil charges.

In other Deutsche Bank-related news, a whistleblower that helped expose false accounting at the firm has turned down an $8.25M award from the U.S. Securities and Exchange Commission for coming forward and reporting the wrongdoing. The information Eric Ben-Artzi and another whistleblower provided resulted in a $55M penalty against the firm over its internal accounting controls involving complex derivatives valuations that were purportedly “inadequate.”

However, Ben-Artzi said he was rejecting the whistleblower award because the SEC did not punish the bank executives that were involved. In an op-ed article in the Financial Times, Ben-Artzi said that the reason Deutsche executives were not punished was that the probe involved senior officers at the SEC who had previously worked at the firm. Mathew Simpson, the other whistleblower, received $8M.

CFTC Charges Deutsche Bank AG with Multiple Swap Reporting Violations, Related Supervision Failures, and Violation of a Prior CFTC Order, CFTC, August 18, 2016

FINRA Fines Deutsche Bank Securities Inc. $12.5 Million for Inadequate Supervision of Internal Communications
, FINRA, August 8, 2016

Big bank whistleblower turns down reward worth millions, CNN, August 19, 2016

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