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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Categorized | Banks

Regulator steps up monitoring of Deutsche

Posted on January 30, 2015

epa04213719 (FILE) A file photo dated 23 February 2011 shows a Deutsche Bank headquarters in Frankfurt Main, Germany. Reports on 19 May 2014 state that Deutsche Bank announced a capital increase with proceeds expected to be approximately 8 billion euros. The capital increase will include an ex-rights issue of 1.75 billion euros which has already been placed with an anchor investor and a fully underwritten rights issue. The rights issue is expected to raise 6.3 billon euros of new equity. EPA/MARIUS BECKER©EPA

A string of alleged failings at Deutsche Bank has prompted the UK’s financial watchdog to more closely monitor the bank’s London office in the most high-profile use to date of a new regulatory tool.

The Financial Conduct Authority has put Deutsche into so-called enhanced supervision, according to people familiar with the situation. The FCA has been able to use the intensive-monitoring programme since the summer. The new powers allow it to demand that a bank’s board commits to a remediation programme, and if failings are deemed serious enough an enforcement probe can follow.

    Enhanced supervision was introduced in response to recommendations made by the Parliamentary Commission on Banking Standards, which put forward proposals that led to tougher laws against errant bankers in the wake of scandals that tainted the City.

    While it is not the first time the FCA has used enhanced supervision — which is normally kept confidential — Deutsche is the largest institution where the application has been revealed, first reported by the Times on Friday.

    “We have been working diligently to further strengthen our systems and controls and are committed to being best in class. We have invested €3.6bn since 2012 as part of this effort,” the bank said in a statement. The FCA declined to comment.

    The FCA cannot use enhanced supervision in response to a single incident of wrongdoing but instead must have concerns over “a serious failure of culture, governance or standards”, according to its own rule book.

    Red flags can include “occurrence of failings in several business areas” and a weak board, the rule book states.

    The watchdog fined Deutsche £4.7m in August for poor transaction reporting but far heavier penalties could be levied as a result of the ongoing investigation into whether Libor, the key benchmark rate, was rigged. While other banks have already paid fines that have topped £1bn over alleged Libor-rigging, the investigation into Deutsche by both the FCA and other authorities continues.

    A separate probe into alleged manipulation of the $5tn-a-day foreign-exchange market is also ongoing. While the FCA will not fine Deutsche over the scandal, other authorities around the world are investigating the bank.

    Germany’s financial watchdog, BaFin, meanwhile confirmed this week that it is probing whether Deutsche should have put out a so-called ad hoc statement ahead of its quarterly results on Thursday, which saw the bank swing back into profit ahead of market expectations and despite a €330m charge to cover consumer-loan contracts.

    Such statements are necessary for information likely to have a material impact on a company’s shares.

    “The potential to materially influence prices can exist, for example, when financial results diverge significantly from the previous year’s numbers or from market expectations,” BaFin said in a statement. The bank declined to comment on the matter.