Deutsche Bank Fined $157MM After Its Traders Were Found To Still Use Chat Rooms To Rig FX Trading

Another day, another fine for the bank that no matter what, just can't play by the rules.

On Thursday, the Federal Reserve fined Deutsche Bank $156.6 million for violating foreign exchange rules and running afoul of the Volcker Rule, suggesting it was likely trading FX out of its own account in violation of Dodd-Frank.

In levying the FX fine on Deutsche Bank, the Fed said it found "deficiencies in the firm's oversight of, and internal controls over, FX traders who buy and sell U.S. dollars and foreign currencies for the organization's own accounts and for customers."

Additionally, and stunningly, years after it became clear that FX chat rooms are about the worst possible idea for currency traders, the Fed said Deutsche Bank failed to detect and address that its traders were still "using electronic chatrooms to communicate with competitors about their trading positions." The order requires Deutsche Bank to improve its senior management oversight and controls relating to the firm's FX trading.

As further detailed in the C&D order, during the four year review Period:

  • Deutsche Bank lacked adequate governance, risk management, compliance, and audit policies and procedures to ensure that Deutsche Bank’s Covered FX Activities complied with safe and sound banking practices and applicable internal policies;
  • FX traders in the spot market at Deutsche Bank routinely communicated with FX traders at other financial institutions through chatrooms on electronic messaging platforms accessible by traders at multiple institutions;

Fed officials are "requiring the firm to cooperate in any investigation of the individuals involved in the conduct underlying the FX enforcement."

Having clearly learned its lesson - for real this time - Deutsche Bank said "we are pleased to resolve these civil enforcement matters with the Federal Reserve."

Separately, the Fed said it "found gaps in key aspects of Deutsche Bank's compliance program for the Volcker rule, which generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund."

The Board also found that the firm failed to properly undertake certain required analyses concerning its permitted market-making related activities. The consent order requires Deutsche Bank to improve its senior management oversight and controls relating to the firm's compliance with Volcker rule requirements.

The FX violations were discovered during a four-year-old review of dealings at the bank, the Fed said in a consent order reached with Deutsche Bank.

Deutsche Bank has bank agreed to improve its oversight of foreign exchange trades as part of the agreement with the Fed.

We are "confident" this this will be the last time we ever hear of Deutsche Bank rigging markets and violating trading rules.