The long-awaited shake-up at troubled Deutsche Bank will see Sylvie Matherat, chief regulatory officer, exit on July 31, and Chief Risk Officer Stuart Lewis assume additional responsibility for the merged compliance and the anti-financial crime units.
These and other senior management changes are part of a restructuring that will involve a workforce reduction of about 18,000 full-time equivalent employees reducing headcount to about 74,000 employees by 2022. Stefan Simon will become chief administrative officer and take on responsibility for regulatory affairs and legal, Deutsche said. Simon has been a member of Deutsche Bank’s supervisory board since August 2016 and has been chairman of its integrity committee.
By combining compliance and financial crime with risk management, Deutsche hopes to break free from the shadows of its past, something which should allow it to become more dynamic in its regulatory obligations. “This move may well simply be an amalgamation necessary as part of the overall streamlining measures, but in many ways, it may well be a concerted effort to break from the shadows and shackles of the past, allowing the bank to be more dynamic and robust in its regulatory obligations,” says Neil Williams, legal director at law firm Rahman Ravelli.
The move will allow for greater understanding of those within the bank of the issues which arise on a daily basis when trading on a scale such as Deutsche Bank…
Deutsche Bank CEO Christopher Sewing’s past as an expert in risk management would certainly seem to be a focus for the bank’s future, adds Williams. “The move will, on first assessment, allow for greater understanding of those within the bank of the issues which arise on a daily basis when trading on a scale such as Deutsche Bank, with the variety of corporate entities and individuals with and on behalf of whom they trade.”
Sewing assured staff the bank would not make any sacrifices when it comes to its control functions. “On the contrary, we can and will further improve them,” Sewing said in a message to staff. “That is why we are bringing risk management together with the divisions for compliance and financial crime.”
With the regulations imposed by the Financial Conduct Authority (FCA) in the UK, and other regulators overseas, concerns over any bank’s activities will always start from an assessment of the resilience of its compliance and regulatory requirements. By having compliance, anti-financial crime, and risk management under the one umbrella, Deutsche Bank is keen to minimize the risk that regulatory breaches occur, and at least allows the opportunity for earlier detection of criminal activity.
Any compliance staff searching for new jobs can benefit from any experience of difficult regulatory situations they may have encountered at the bank, such as mirror trading, which allows investors to copy or mirror the trades of other investors. Deutsche’ compliance department has seen such challenges, including mirror trading coming out of Russia, which led to the FCA fining it £163 million in January 2017.
Despite the major restructuring, the bank has started fresh hiring of compliance and anti-money laundering (AML) staff in the UK and the United States. It is also hiring compliance staff in Frankfurt and Tokyo.
Role of Regulators
The UK Prudential Regulation Authority (PRA) is meanwhile scrutinizing Deutsche Bank’s restructuring to ensure it is executed safely. PRA supervisors are in close contact with Deutsche, BaFin (the federal securities supervisory authority in Germany), and the European Central Bank (ECB).
To supervise Deutsche Bank as a significant institution directly, the ECB uses joint supervisory teams formed of ECB staff and relevant national supervisors, including the competent authorities of the countries in which the credit institutions, banking subsidiaries, and significant cross-border branches of the banking group are established.
Deutsche is to exit its equity sales and trading business, while retaining a focused equity capital markets operation, it said. The bank will resize its fixed income operations and will accelerate the wind-down of its existing non-strategic portfolio. It will reduce risk-weighted assets allocated to these businesses by 40%.
Deutsche aims now to focus on its core, market-leading businesses of corporate banking, financing, foreign exchange, origination and advisory, private banking, and asset management. The bank intends to fund its transformation from existing resources, and the management board intends to recommend no common equity dividend be paid for 2019 and 2020.
By any measure, for the bank, its management, employees and stakeholders, it’s going to be long road ahead.
This article was written by Alex Davidson, Senior AML Financial Crime correspondent for Thomson Reuters.