Dusk image of surrounding buildings and skyscraper.

Attest in haste, repent at leisure

06 May 2015

The FCA has recently published another final notice issued to a large bank arising from LIBOR-related misconduct.

This disciplinary action is particularly noteworthy because the headline misconduct was compounded by a number of serious breaches by the bank of the obligation to be open and co-operative with the regulator.

The FCA published the final notice it has issued to Deutsche Bank AG on 23 April, fining it £226,800,000 for serious misconduct in relation to LIBOR and EURIBOR (together, IBOR) and for failing to deal with the FCA in an open and co-operative way. Deutsche Bank agreed to settle at an early stage of the FCA investigation and therefore qualified for a 30% discount.  This fine is the largest ever imposed by the FCA for IBOR-related misconduct and, amongst FCA fines, it is second only to the fine imposed on UBS for misconduct relating to foreign exchange trading. Additionally it was announced that Deutsche Bank had been fined by regulators in the United States; the Commodities Futures Trading Commission (CFTC), the US Department of Justice (DoJ) and the New York Department of Financial Services (NYDFS) imposed fines of $800 million, $775 million and $600 million respectively.

Notwithstanding the eye-catching level of the fines, much of the contents of the FCA's final notice is (depressingly) familiar stuff.  The FCA's pronouncements about the culture of misconduct and the systems and controls failings could easily have been lifted from the other final notices issued to firms for IBOR misconduct (or even – with suitable amendments – from the final notices issued to firms for foreign exchange related misconduct).

The misconduct which constituted a breach of Principle 11 is what really marks this notice out as being different from the others.  Whilst the detail given around the systems and controls failings that comprised the breach of Principle 3 does make for interesting reading for firms (particularly market participants), it is the breach of Principle 11 that makes this case potentially very significant for firms across the regulated sector.

The notice highlighted instances where Deutsche Bank provided false, inaccurate or misleading information to the FCA, thereby breaching Principle 11.  These instances included a number of occasions where Deutsche Bank breached Principle 11 during the course of the enforcement investigation.  The regulators treat any breach of Principle 11 as being especially serious, particularly if committed by a large firm, because the regulators are so dependent upon firms being open and co-operative with them.  Here, the FCA unsurprisingly identified some of the misconduct as being not merely serious but 'egregious'.

One of these egregious examples related to a breach of Principle 11 during the course of the enforcement investigation, whilst another of these breaches related to a false submission being provided to the regulator in response to a request for an attestation. In the former incident, a senior manager at Deutsche Bank contacted the Director of Enforcement to inform her that it was both unnecessary and inappropriate for the FCA to widen the scope of their investigation to include a Principle 11 breach.  The FCA had indicated that they intended to investigate a breach of Principle 11 because of Deutsche Bank's non-disclosure of a report received from the German regulator (BaFin); this senior individual explained Deutsche Bank's position and represented that it had not been permitted to disclose the relevant document.  In fact, Deutsche Bank had been allowed to disclose the document by BaFin and hence the senior manager's representations, which he made having been briefed by others, were false.  Once he learned that his representations may have been misleading, this senior manager also failed to notify the Director of Enforcement of the true position.

In the latter incident, Deutsche Bank had been asked to provide an attestation about the adequacy of the systems and controls in place for its LIBOR submissions.  The attestation was directed to another senior manager at Deutsche Bank, who then delegated responsibility for completing the attestation to a compliance officer.  Ultimately the compliance officer produced an attestation which was false in a number of ways which were known to the compliance officer.  This attestation was then sent to the regulator by the senior manager to whom it had been addressed (along with two other senior managers who were identified within the attestation), even though he had not taken any steps to independently verify the accuracy of the information that was contained within.

The FCA's press release is silent as to whether any of the senior management who were responsible for these breaches of Principle 11 (or indeed any other aspect of the misconduct outlined in this notice) are to face enforcement proceedings in their own capacity as approved persons.  In any event, whether or not these individuals face action, these instances of misconduct merit attention from all senior managers when communicating directly with the regulator.  In particular, this serves as a warning to those who might rely on the work of others without having taken the opportunity independently to verify the relevant conclusions.

Stay connected and subscribe to our latest insights and views 

Subscribe Here