How Universities should investigate a complaint under the disciplinary procedure
The Final notice published on 23 April 2015 contained many twists and turns to distinguish why Deutsche Bank has been subject to the highest fine ever issued by the Financial Conduct Authority (FCA) or its predecessor (the Financial Services Authority (FSA)). The £227million fine in the UK is part of a $2.5 billion penalty to settle the case globally. In addition the settlement included an agreement to dismiss seven employees.
A significant part of the fine related to instances where Deutsche Bank provided false and misleading information to the FCA including the provision of an inaccurate attestation.
As set out in our earlier blog “Personal commitments: Benefits and risks of signing an attestation with the FCA”, the trend is that the use of attestations by the FCA is on the increase. The Deutsche Bank experience clearly puts attestations on the map as a regulatory tool that is not only designed to obtain “a personal commitment from an approved person at a regulated firm that specific action has been taken or will be taken” but that signing an attestation exposes both the individual and the firm on whose behalf they are signing vulnerable to the risk of regulatory action should the attestation be shown to be false, misleading or there be a breach in the undertaking given.
In the Final Notice, the FCA identified instances where Deutsche Bank provided false, inaccurate or misleading information to it, including a number of failures arising during the course of its investigation, and in particular dealt with the provision of a formal attestation which was known to be false by the person who drafted it at the time it was sent to the FCA. The attestation was one requested of all banks that contributed to the LIBOR setting process (the Panel Banks) in early 2011 as to the adequacy of the systems and controls in place. This had been preceded in December 2010 by a request from the British Bankers Association (the BBA) for all Panel Banks to confirm that an audit of the LIBOR submissions process had been carried out. The Final Notice states that a Compliance Officer signed and submitted to the BBA confirmation which stated that the Deutsche Bank submissions had been audited. This was shown to be false.
The attestation request from the FCA was addressed to Senior Manager in the following terms:
“Should the current arrangements not be considered wholly inadequate, please provide reasons for this and what plans are in place in order to address the identified issues.”
The Final Notice sets out the steps taken by the Compliance Officer and the results of those enquiries. The Compliance Officer provided a draft attestation to the Senior Managers, who approved it and the Senior Manager who received the request signed it. The terms of the attestation stated:
“The Compliance department have conducted spot checks on a random sample of LIBOR submissions across a number of currencies. In addition DB monitors all email and instant messaging communications of all front office staff. The focus of this surveillance is DB’s market conduct, such that key words and phrases within the monitoring tool are designed to flag potential market conduct issues. Any potential issues can be escalated and investigated as necessary.
In light of the above, I consider, together with the senior management……that DB currently has adequate systems and controls in place for the determination and submission of DB’s LIBOR fixings.”
The Final Notice sets out that the three paragraphs in the attestation were false, all of which they say were known to the Compliance Officer, which are as follows:
Specific criticism is made in the Final Notice to the two Senior Managers named in the attestation and the Senior Manager who signed it. The task had been delegated to the Compliance Officer with minimal Senior Management oversight. Shortly after the attestation had been signed in June Deutsche Bank did begin a period of “intensive scrutiny of the shortcomings of [the] LIBOR systems and controls” which led to a “major overhaul of those systems and controls”, however the Final Notice states that at no stage did Deutsche Bank explicitly correct the false information.
The Final notice sets out additional failures during the course of the FCA’s investigation to deal “appropriately with information relevant to the investigation”, including relating to information about audio recordings, timely provision of documents and destruction of documents subject to an FCA preservation notice.
The Final Notice states that each of the set of facts around these issues independently gives rise to a breach of Principle 11, namely that a failure to deal with the FCA in an open and cooperative way and to disclose information which the FCA would reasonably expect notice. In particular with regard to the false attestation it states that the Senior Managers “had not given proper consideration to the Attestation being provided and allowed it to be sent to the [FCA] without sufficient scrutiny, even though it expressly relied on their personal approval of the systems and controls” (emphasis added). Aggravating features included that the Compliance Officer knew that the attestation was false and that shortly before the same Compliance Officer had signed a false confirmation to the BBA in relation to LIBOR submissions.
It may be of some comfort for those who may find themselves in the position of being required to sign an attestation that the FCA did note that “in a matter of this scale, it is expected that mistakes will be made and there will be allowances for human error”.
The FCA considered the seriousness of the breaches of Principle 11 to warrant a level 4 fine (with 5 being the highest) within the FCA’s Decision Procedure and Penalties Manual (DEPP). The breaches of Principle 11, when discounted for co-operation and settlement, accounted for just over £100 million of the total £227 million fine. In addition, to settle the case Deutsche Bank also dismissed seven employees.
This case sends out a strong message that both individuals and companies need to be diligent when they are asked to sign attestations. In addition, the new Senior Managers regime is due to come into operation on 7 March 2016 and aims to strengthen the accountability of bank senior management and to raise standards of individual conduct in the banking sector. The FCAs focus on the accountability of Senior Managers will mean they will face more onerous regulation by, for example, signing up to a Statement of Responsibilities and then being required to take active steps to prevent breaches of those Responsibilities. A failure to take active steps could result in regulatory action under the new principle of the “presumption of responsibility”.
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