Question

Identify and discuss a recent legal or regulatory breach that violated financial industry standards. Discuss why the breach occurred and what the consequences were. Discuss the legal outcome and how the violation may be prevented in the future. Utilize and cite library resources such as current news articles or professional magazines or publications.

Answer 1

This is an interesting topic seeing that we are in an industry that priorities strict anti-money laundering (AML) procedures and yet we continue to hear case after case of regulatory breaches(Phillips, Lesesne, 2017). Case in point, it is often reported on that the Deutsche Bank is often involve in money laundering as in the case of current sitting President (Kwong, Jessica, 2019). In a more serious note is that in January 2017, the UK’s Financial Conduct Authority (FCA) fined Deutsche Bank for over £163 million. Deutsche Bank actually agreed to settle at Stage 1 of the investigation; therefore, the company received a 30% discount on its penalty. Had it not done so, the company would have had to pay a fine in excess of £229 million(Chandran, Kelvin, 2018).

According to the official report released by the FCA, Deutsche Bank failed to maintain an adequate AML control framework between January 2012 and December 2015. The main infraction was illegal mirror trading. Deutsche Bank’s lack of oversight enabled clients to buy stock in Russia with Rubles and sell the same quantity of shares in London’s market(Chandran, Kelvin, 2018).

This then allowed clients to transfer funds to overseas bank accounts in Cyprus, Estonia, and Latvia. This marked the largest AML financial penalty in the history of FCA (current financial regulatory agency) as well as its predecessor FSA, which was founded in 1985.

The compliance issues were:

· performed inadequate customer due diligence

· failed to ensure that its front office took responsibility for the CB&S division’s Know Your Customer obligations

· used flawed customer and country risk rating methodologies

· had deficient AML policies and procedures

· had an inadequate AML IT infrastructure

· lacked automated AML systems for detecting suspicious trades

· failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions

How the violation may be prevented?

The FCA specifically listed the fact that Deutsche Bank failed to obtain sufficient customer information as one reason. Without this information, the bank was unable to properly utilize its existing risk assessment process or to provide effective transaction monitoring.

References:

Chandran, Kelvin. (2018). Case Study: Organizations Fined for AML Regulatory Breaches. Retrieved from https://www.mysinglesource.io/blog/case-study-organisations-fined-for-aml-regulatory-breaches

Kwong, Jessica. (2019). Deutsche Bank Providing Donald Trump Financial Records as Investigations Continue After Mueller Report. Retrieved from https://www.newsweek.com/deutsche-bank-providing-donald-trump-financial-records-investigations-1376251

Phillips, Lessen. (2017). If It Quacks Like a Duck: The Financial Industry Regulatory Authority and Federal Jurisdiction.Washington & Lee Law Review. Volume. 74(Issue 3, p1695-1742. 48p). Retrieved from https://eds-b-ebscohost-com.libauth.purdueglobal.edu/eds/pdfviewer/pdfviewer?vid=2&sid=5e25e60e-eb9a-4ab8-a0f0-c0369ad636a8%40pdc-v-sessmgr02

For this Unit’s research, there is a plethora of information dealing with regulatory breaches. Especially in the financial institutions, such as banks, insurance companies, investment management firms, and payment processors, where we maintain confidential, personal information. In today’s cyber-based society, data breaches present an ever-increasing problem, and this industry is a prime target. What makes it more painful is when we have a breach by the institutions and their agents to the point where a Financial Advisor is not as trust worthy as they were prior to the 2018 crash.

I wanted to incorporate the psychology behind thebreach that violated financial industry standards but ran into a snag. I am assuming that I am not wording my search correctly or maybe I am looking at the subject matter incorrectly. In any case, I am reminded that these breaches come at a great price where companies and their affiliates, agents, agencies, etc., may face fines and lawsuits by both private citizens and the government.

The buzz on the news feeds are that given the importance of data protection to the national economy and the increasing risk of cyber threats, it is anticipated that federal and state legislatures will propose an overabundance of bills that could have a major impact on the financial services industry to the un-liking of its advisors.