The Financial Industry Regulatory Authority (FINRA) announced on Monday, August 8 that it had fined Deutsche Bank Securities Inc. $12.5 million for failing to adequately supervise certain information circulated to employees.
The information, also known as ‘squawks’ or ‘hoots,’ involved research and knowledge related to trading. According to FINRA, there were a variety of red flags that should have prompted Deutsche Bank to create some form of supervision regarding employee access to squawks, and how they communicated with customers about information gleaned through those squawks.
Through their investigation, FINRA discovered that not only was Deutsche Bank aware of the squawks, they were aware that they may contain price-sensitive and confidential information regarding trading and research. Some of the red flags FINRA noted that the firm ignored included internal risk assessments, several internal warnings given by members of Deutsche Bank’s compliance department, and internal audit findings and recommendations.
The Chief of Enforcement and Executive Vice President of FINRA Brad Bennett said:
"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."
Over the years of warnings, the firm neglected to implement how employees should handle information from squawks, how employees should be supervised to guarantee compliance, what reasonable written policies should be introduced, how material and confidential nonpublic information possibly transmitted via the squawks should be protected, and what systems and procedures should govern which employees had access to the information.
Deutsche Bank consented to the entry of FINRA's findings in settling this matter, but did not admit to or deny the charges.
