Spanish watchdog opens mis-selling proceedings against Deutsche Bank

Spain’s financial watchdog has launched “disciplinary proceedings” against Deutsche Bank, the latest escalation of a long-running scandal over the lender’s alleged mis-selling of risky derivatives.

Small and medium-sized businesses in the country have alleged that the bank touted high-risk foreign exchange derivatives as cheap and low-risk currency hedges without highlighting their downsides. Deutsche has already paid tens of millions of euros in settlements and sanctioned about a dozen staff after clients suffered crippling losses.

The Spanish National Securities Market Commission (CNMV) said Deutsche’s conduct between October 2018 and March 2021 “may constitute” a “very serious infringement” of Spanish securities law “in a non-occasional or isolated manner”.

Under Spanish law, the fines authorities can mete out for very serious infringements of securities law can reach 10 per cent of the annual turnover of a company’s local subsidiary.

The end of the period set out by the CNMV is more than a year after Deutsche Bank started its own investigation, after it received a whistleblower complaint in 2019. The Financial Times reported in September that Deutsche Bank had offered the controversial derivatives to SME clients until last summer, even after some had built up large losses.

The watchdog said that the bank had a legal duty to “inform investors in a balanced, clear, impartial and non-misleading manner on the characteristics, operation, risks and costs” associated with highly complex derivative products. The lender had to “always act in the best interest of the clients, advising on products that suit their investment needs and objectives — and especially their risk profile”. the CNMV added.

Deutsche’s internal investigation found that some of the bank’s employees acted in bad faith and exploited holes in its internal controls.

The CNMV said it had identified “potential non-compliance” with Spanish law in relation to the foreign exchange derivatives, but noted that “at the time different information was disclosed in the specialised press”. In March 2021, Deutsche Bank told the FT that only a “limited number of clients” might have been affected by the mis-selling.

The regulator said the proceedings were still ongoing and its announcement “did not prejudge the final outcome”.

Deutsche Bank said in a statement that it was aware of the regulatory decision, taken in December but announced on Thursday, and that the bank was “reviewing and enhancing relevant processes and controls”.