UK watchdog punishes Deutsche Bank for misleading Libor probe

Deutsche Bank has paid an unprecedented £100.8m for misleading the UK's financial watchdog, as part of its record $2.5bn Libor fine in stark evidence that regulators will not tolerate institutions hampering investigations.

The Financial Conduct Authority on Thursday catalogued a series of damning failings by Deutsche's senior management and compliance team during the course of its investigation into Libor manipulation, from falsely representing that German authorities had told it not to share an investigative report with other regulators, to inadvertently destroying 482 phone calls that the watchdog had asked it to preserve, to a cavalier attitude to giving guarantees that it had robust checks against Libor manipulation.

The bank, advised by law firm Slaughter and May, has paid a heavy price: the £100.8m - almost half the total fine the German lender paid to the UK regulator - that was tagged on to the total $2.5bn bill for Libor manipulation is the highest penalty the FCA has ever meted out for a breach of Principle 11, which requires companies to deal with the regulator in a fair and open way.

While there have been 190 previous cases of Principle 11 breaches, they are predominantly the preserve of small companies and individuals.

"Deutsche Bank's failings were compounded by them repeatedly misleading us," said Georgina Philippou, the FCA's acting director of enforcement and market oversight. "The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls."

The bank is now as a result in "special measures"; a new robust level of supervision by the FCA that was ordered by the Parliamentary Commission on Banking Standards.

One senior manager maintained to Tracey McDermott, the FCA's then head of enforcement, as recently as January 2014, that the bank's earlier representations that it had been asked by BaFin, the German watchdog, not to share an investigative report with the FCA were accurate, then did not bother to correct that position when new information came to light, according to the FCA's findings published on Thursday.

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Deutsche said that it recognised that "there were defects and delays in collecting and producing documents and audio. [The bank] has significantly increased the number of employees dedicated to electronic discovery to 200 and raised expenditure by 600 per cent since 2012."

It took two years for the FCA to obtain a cache of phone calls it needed for its investigation, the regulator said. This explains in part why Deutsche's settlement - the highest to date in the seven-year Libor probe - has taken until now to settle.

While the delay has damped the potential for serious fallout of the kind Barclays suffered, it has enabled the increasingly vocal New York Department of Financial Services to claim its part of the spoils: Deutsche paid $600m on Thursday to the DFS, the first time the agency has been part of a Libor settlement.

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