U.S. regulators have sanctioned Deutsche Bank Securities Inc. for failing to supervise the information that flowed over its squawk boxes.
The Financial Industry Regulatory Authority (FINRA) fined Deutsche Bank Securities US$12.5 million for “significant supervisory failures” involving research and trading-related information that was transmitted over its squawk boxes. “Despite multiple red flags regarding the potential dissemination of confidential information, Deutsche Bank failed to establish adequate supervision over registered representatives’ access to hoots or their communications with customers regarding hoots,” FINRA says.
Deutsche settled the case without admitting or denying the allegations, but it consented to FINRA’s findings. In addition to the fine, the firm also agreed to implement supervisory systems and written procedures that ensure it complies with the rules and federal securities laws.
FINRA says that Deutsche Bank “repeatedly ignored red flags indicating that its supervision was inadequate,” including the results of internal audits and warnings from its compliance department. Despite these warnings, FINRA found that the firm failed to develop adequate compliance processes governing how information transmitted over its squawk boxes should be handled.
“Recognizing and responding to red flags is the hallmark of proper supervision, particularly in areas involving confidential information. Deutsche Bank’s disregard of years of red flags, including internal audit findings, risk assessments and compliance recommendations was particularly egregious given the risk that material nonpublic information could be communicated over squawk boxes,” said Brad Bennett, executive vice president and chief of enforcement at FINRA.