A Deutsche Bank inquiry into the mis-selling of risky foreign exchange derivatives in Spain has found that staff acted disingenuously, exploited flaws in the bank’s controls and broke EU rules, according to people with knowledge of the report.
One of the people said employees acted in “bad faith” over years, pushing small-and-medium-sized Spanish companies to buy highly complex foreign exchange derivatives. The products, which were promoted as safe and cheap, were meant to hedge against foreign exchange risks. They generated huge profits for Deutsche but exposed clients to extensive risk and crippling losses in some cases.
A second person familiar with the probe described some of the Deutsche staff conduct as “very unfortunate”.
Fewer than 12 people were formally sanctioned by the bank over the misconduct, the people said.
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The probe of the mis-selling – code-named “Project Teal” – was first reported by the Financial Times two years ago and is nearing its conclusion. The bank has paid tens of millions of euro in settlements to affected clients, the people said. It has also tightened internal controls and stopped offering some foreign exchange products to certain client groups.
The bank is still fighting a €500 million legal claim by one of Spain’s largest hotel groups in London’s high court over the trades, arguing this case was structurally different from others it has settled.
The misconduct, which involved a London desk of Deutsche’s investment bank, as well as Spanish operations at its international private unit, spanned several years until 2019. The probe, which was conducted by a large London-based law firm, was launched in the second half of 2019 after an internal whistleblower raised allegations, just after a managing director in charge of the structured products had left. – Copyright The Financial Times Limited 2023
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