The Dubai International Financial Centre (DIFC) branch of Deutsche Bank AG (Deutsche Bank) has been fined US$8.4 million by the Dubai Financial Services Authority (DFSA) as set out in a decision notice dated 29 March 2015.

The DFSA fined Deutsche Bank for:

  • Providing misleading information to the DFSA;
  • Failing to comply with AML and conduct of business requirements in respect of certain clients of Deutsche Bank; and
  • Failing to have in place adequate governance, systems and controls and compliance arrangements to meet regulatory requirements.

The decision notice followed an investigation into Deutsche Bank by the DFSA in respect of activities carried out by the bank between January 2011 and January 2014. The investigation was launched after it was suspected that Deutsche Bank was failing to classify certain customers as clients of the DIFC branch in breach of DFSA rules.

The investigation confirmed that Deutsche Bank’s private wealth management business had been advising on financial products and credit, and arranging credit and deals in investments, whilst failing to classify a number of customers receiving those services as clients, despite DFSA rules prescribing that the provision of such services requires such classification. Instead, Deutsche Bank had been classifying those customers as clients of the booking locations where the relevant transactions were executed, each of which were other Deutsche Bank group branches or entities. In failing to classify customers appropriately, Deutsche Bank had deprived them of certain regulatory protections.

It was further revealed that certain Deutsche Bank employees had represented expressly to the DFSA that the DIFC branch had been merely referring and introducing customers to other parts of the Deutsche Bank group, activities which do not trigger the requirement to classify customers as clients.

As a result of inappropriate classification, Deutsche Bank failed to comply with certain Conduct of Business requirements and AML requirements in relation to a number of customers.

Contrary to DIFC AML rules, Deutsche Bank failed to:

  • Subject customers to customer identification and verification in the DIFC;
  • Subject customers to an AML risk assessment in the DIFC;
  • Ensure that its records were held in accordance with AML rules;
  • Establish and maintain effective AML policies, procedures, systems and controls to prevent opportunities for money laundering in relation to its activities;
  • Ensure its employees complied with the requirements of its AML systems and controls;
  • Review the effectiveness of its AML systems and controls.

The DFSA decision notice further criticised Deutsche Bank for failing to have:

  • Adequate systems and controls in place to ensure that it complied with DIFC legislation;
  • Adequate resources to conduct and manage its affairs, including financial and system resources as well as adequate and competent human resources; or
  • A corporate governance framework in place adequate to promote the sound and prudent management and oversight of its business and to protect the interest of its consumers and stakeholders.

The DFSA has imposed a number of directions in relation to Deutsche Bank’s governance systems and controls. In the decision notice, the DFSA acknowledged that Deutsche Bank had already made certain improvements in this regard. No clients were found to have suffered an actual loss as a result of the acts and omissions of Deutsche Bank.

The US$8.4 million fine is the largest ever imposed in the DFSA’s ten-year history. The limits of the fines that the DFSA can impose were increased in 2014. Almost half of the total fine amount is attributable to Deutsche Bank’s concealing of information, which mislead the DFSA.