Deutsche Bank threatened with fines over flawed money laundering controls

Germany’s financial watchdog has threatened to fine Deutsche Bank after the lender failed to fix flaws in its anti-money laundering controls, in the latest setback for chief executive Christian Sewing.

Sewing promised to put an end to Deutsche Bank’s long-running legacy of control shortcomings and misconduct scandals after becoming chief executive in early 2018, forking out more than €2bn to improve internal control systems.

Yet the bank on Thursday acknowledged that the improvements to its transaction monitoring systems demanded by BaFin had only been “partially completed”.

The US Federal Reserve fined Deutsche Bank $186mn last year for a “material failure” to fix “unsafe and unsound banking practices” that the bank had promised to resolve as long ago as 2015. In 2022, the supervisory board capped Sewing’s bonus, along with nine other members of the management board, over the delays in improving internal controls.

BaFin said on Thursday that it had extended the mandate of its special monitor, dispatched in late 2018, until October 2024. The monitor’s mandate had been due to end this spring.

“BaFin has ordered specific measures to improve the IT systems used for transaction monitoring,” the watchdog said.

Deutsche will have to pay a fine if it misses the deadline. In late 2023, BaFin dispatched a second special monitor to oversee Deutsche’s German retail banking unit, which was inundated with client complaints after a botched IT update last summer.

It is the second time in less than two years that BaFin has threatened Deutsche Bank with fines over its flawed controls.

The regulator last threatened Germany’s largest lender in late 2022, when it was behind schedule on fixing flaws in know-your-customer controls. People familiar with the matter said the KYC issues had since been resolved and Deutsche had avoided fines.

Deutsche Bank said in a statement that there were “no new findings” in the latest BaFin rebuke and stressed that it “will continue to fully co-operate with BaFin and invest the necessary resources” to meet the deadline.