Deutsche Bank Fined $3M by Hong Kong's SFC Over Multiple Breaches

Deutsche Bank AG DB has been fined HK$23.8 million ($3.05 million) by Hong Kong’s Securities and Futures Commission (SFC) for multiple regulatory breaches, including fee overcharging, misclassification of product risk and failure to disclose investment banking relationships in research reports.

This enforcement action comes within days of HSBC Holdings plc being fined HK$4.2 million by Hong Kong regulators for similar disclosure failures in more than 4,200 research reports published between 2013 and 2021.

Details of DB’s Regulatory Violations

The disciplinary action stems from investigations triggered by Deutsche Bank’s self-reports submitted between December 2020 and December 2023. The SFC found that between November 2015 and November 2023, the bank overcharged clients approximately $39 million in management and custodian fees. These overcharges resulted from failure to apply discounted fee rates and misstatements in fund valuations.

Additionally, Deutsche Bank assigned lower-than-appropriate product risk ratings to 40 exchange-traded funds. As a result, 10 transactions exceeded clients’ risk tolerance thresholds. The regulator also cited that the bank failed to disclose its investment banking ties with several Hong Kong-listed companies in 261 single-stock reports and 1,590 industry reports published between September 2014 and September 2021.

DB’s Response to the Violations

In a statement to Reuters, Deutsche Bank confirmed that it has resolved the identified issues and strengthened internal controls to prevent recurrence. The bank has refunded affected clients, emphasizing its commitment to regulatory compliance.

DB’s Zacks Rank & Price Performance

Over the past six months, DB shares have surged 63.9% on the NYSE compared with the industry’s growth of 23.7%.

Currently, DB carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Legal Issues Faced by Other Banks

Earlier this week, JPMorgan JPM agreed to pay $330 million to settle ongoing and potential claims associated with the 1MDB sovereign wealth fund.

The settlement was announced as Swiss regulators, in a separate action, found the U.S. bank guilty and imposed a fine for JPMorgan’s failure to prevent money laundering in transactions associated with 1Malaysia Development Berhad.

Similarly, in the same month, ICICI Bank IBN was also charged a monetary penalty of INR7.5 million ($85,479) by the Reserve Bank of India (“RBI”) for non-compliance with regulatory requirements.

The penalty was imposed on the IBN for not complying with certain RBI guidelines related to the “Valuation of Properties - Empanelment of Valuers” and the “Opening of Current Accounts by Banks – Need for Discipline.”

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This article originally published on Zacks Investment Research (zacks.com).

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