Consent order DB

Question 1

What is the DB FX Consent Order?

Answer 1

• Answer: A regulatory action issued in April 2017 by the Federal Reserve Board against Deutsche Bank for misconduct in FX trading. The order addressed governance failures, trader misconduct, and compliance deficiencies, requiring corrective actions and imposing a $136.95 million penalty.

Question 2

What was the scope and timeline of the review leading to the consent order?

Answer 2

• Answer: The review focused on Deutsche Bank’s FX trading activities from October 2008 to October 2013, uncovering widespread misconduct, including FX benchmark manipulation, improper communications, and governance failures across its U.S. and global operations.

Question 3

What were the major deficiencies identified in DB’s FX activities?

Answer 3

• Answer:

1. Trader Misconduct: Collusion with competitors, sharing trading positions, and influencing FX benchmarks.
2. Governance Failures: Weak oversight and escalation mechanisms.
3. Compliance Gaps: Ineffective monitoring, inadequate policies, and insufficient training

Question 4

How did DB manipulate FX Benchmarks?

Answer 4

Traders colluded in multibank chatrooms to influence FX rates during “fix” times.

• Coordinated trading strategies were designed to benefit Deutsche Bank’s financial positions at the expense of market integrity.

Question 5

What governance failures did the consent order highlight?

Answer 5

1. Senior management did not reassess risks tied to FX trading.
2. Lack of robust policies to prevent or detect misconduct.
3. Ineffective escalation mechanisms for addressing trader behavior.

Question 6

What compliance deficiencies did DB face?

Answer 6

• Inadequate internal controls and surveillance mechanisms to monitor trading activities.
• Absence of clear policies for handling conflicts of interest and client confidentiality.
• Failure to provide effective compliance training for employees.

Question 7

What speicific misconduct did DB’s traders engage in?

Answer 7

1. Sharing sensitive trading positions with competitors.
2. Coordinating trading strategies to manipulate FX benchmarks.
3. Attempting to trigger or defend FX barrier options for profit.
4. Colluding on bid/offer spreads for non-deliverable forward contracts.

Question 8

What actions were mandated under the consent order?

Answer 8

• Answer:

1. Governance Improvements: Strengthen senior management oversight and risk assessments.
2. Enhanced Compliance: Develop robust internal controls, policies, and surveillance systems.
3. Training Programs: Provide ongoing training for employees involved in FX activities.
4. Cultural Reforms: Promote ethics and accountability.

Question 9

What penalty did DB face as part of the consent order?

Answer 9

• Answer: Deutsche Bank was fined $136.95 million, which was paid to the U.S. Department of the Treasury. The fine reflected the bank’s violations of U.S. laws and unsafe practices in FX trading.

Question 10

What were the broader implications of the consent order?

Answer 10

• Question: What were the broader implications of the Consent Order for Deutsche Bank?
• Answer:
• Reputational Damage: Tarnished public perception and trust.
• Increased Scrutiny: Heightened regulatory oversight and stricter compliance requirements.
• Operational Costs: Higher costs for monitoring systems, audits, and training.

Question 11

Define the key risks associated with the consent order?

Answer 11

• Question: Define key risk terms associated with the Consent Order.
• Answer:

1. Market Conduct Risk: Risk of unethical trading behavior that distorts fair market operations.
2. Governance Risk: Failures in leadership and oversight structures to manage risks.
3. Compliance Risk: Risk of penalties from non-compliance with laws or policies.

Question 12

What steps must DB take to comply with the consent order?

Answer 12

1) Submit regular reports to the Federal reserve
2) Conduct independent audits of controls and compliance systems.
3) Fully implement enhanced governance and compliance measures.