DB To Pay $10 Million To Settle Two CFTC Cases

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Deutsche Bank Pays Over $10 Million to Settle Two CFTC Cases

Reporting violations and spoofing cost Deutsche Bank AG more than $10 million – and that is after the Commodity Futures Trading Commission (CFTC) gave the financial services giant credit for cooperation. Without it, imagine how steep the fines and penalties would have been!

Where did Deutsche Bank’s oversight fail?

In the first of two matters, the bank faced charges stemming from alleged violations of various swap data reporting and other regulatory violations. In the second, the CFTC issued an administrative order against Deutsche Bank Securities Inc. (DBSI) and settled charges that two of the firm’s traders engaged in spoofing. The pair reportedly placed bids or offerings on the Chicago Mercantile Exchange manually with the intent to cancel those bids or offers before execution.

Both matters have settled but at a price.

Were the $9 million exposures due to supervisory failures?

Of course. And reporting failures. According to CFTC Director of Enforcement James McDonald, the Commission cannot address systemic risks in swap markets if it doesn’t have accurate reporting of the swaps dealing activity of our registrants.

The good news for Deutsche Bank is that the CFTC accepted its consent order. District Judge William H. Pauley III of the United States District Court for the Southern District of New York entered the decree settling the CFTC’s case against Deutsche Bank for its numerous swap data reporting requirements, failures related to supervision of its business continuity and disaster recovery plan, and violations of a 2015 CFTC order.

For Deutsche Bank, these exposures resulted in a $9 million civil monetary penalty – which, despite its size – 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 consent order also 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 violated.

A costly technical glitch that snowballed

The consent order stems from a complaint filed in August 2016, following an unprecedented swap reporting platform outage at Deutsche Bank. The outage, which began on April 16, 2016, continued for the next five days. As a result, Deutsche Bank was unable to report any swap data for multiple asset classes.

According to the consent order, 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 breadth of the failures regarding Deutsche Bank’s swap data reporting, supervision, and disaster recovery plan, the CFTC requested, and Deutsche Bank will comply with the appointment of a monitor to facilitate its compliance with its swap data reporting obligations. The monitor will make and Deutsche Bank will implement numerous recommendations to remediate outstanding issues.

And then, there was DBSI’s exposure

The CFTC also issued an administrative order filing and settling charges against DBSI for spoofing in the Treasury futures and Eurodollar futures contracts on the Chicago Mercantile Exchange. The spoofs will cost DBSI, among other things, a civil monetary penalty of $1,250,000.

What happened? From at least January 2013 through at least December 2013, two Tokyo-based DBSI traders engaged in spoofing. One of the DBSI traders spoofed in the Treasury futures market while the other spoofed in both the Treasury and Eurodollar futures markets. The CFTC says Deutsche Bank’s cooperation reduced what is still a costly civil monetary penalty.

Where was compliance?

Otherwise engaged? Had oversight been in force, Deutsche Bank would not be on the hook for millions of dollars. There is no question that compliance is cheaper. And that’s where Patrina comes in. For more than 25 years, Patrina has been helping compliance professionals like you stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155

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