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Thursday, April 18, 2024

Deutsche Bank faces fresh ECB scrutiny over FX sales

Deutsche Bank AG faces renewed criticism from the European Central Bank (ECB) regarding its foreign-exchange (FX) sales practices, despite having conducted an internal investigation (known as Project Teal) that resulted in some initial changes. According to sources familiar with the matter, the ECB’s supervisory team has urged Deutsche Bank to enhance oversight and checks in its FX derivatives business, particularly when pitching these products to European companies like swaps.

The concerns stem from the ECB’s observation that Deutsche Bank has not adequately communicated the associated risks of the FX products to its clients during the sales process. Despite the internal probe leading to some alterations in procedures, the bank still faces scrutiny over its sales practices. Representatives for Deutsche Bank and the ECB have declined to provide comments.

This criticism poses a challenge for Chief Executive Officer Christian Sewing, who has been striving to move beyond the bank’s history of scandals and regulatory issues during his tenure. Although Sewing has resolved several legacy problems, new issues continue to surface, necessitating a shift in focus from cost-cutting to remediation efforts.

The internal Project Teal investigation led to the departure of employees and substantial monetary settlements, with at least one unresolved case resulting in a lawsuit. Deutsche Bank implemented some broader controls and procedures in response to the probe, but other units were not found to engage in similar practices. However, the investigation faced criticism from the ECB and German banking watchdog BaFin for being too narrow and protracted.

While the initial complaint by regulators has been dropped, the ECB’s supervisory team assigned to Deutsche Bank continues to express concerns over the FX derivatives practices, as highlighted in their recent criticism.

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