Hong Kong Regulator Slaps Deutsche Bank with $23.8m Fine

Hong Kong’s securities and futures market regulator has levied a $23.8 million fine on Deutsche Bank Aktiengesellschaft (DB) for a number of regulatory breaches including overcharging clients on management fees, incorrect ratings assignments and failures to disclose relationships in research reports.

The Securities and Futures Commission (SFC) “reprimanded” the German banking giant on Thursday, after the bank reported itself to the supervisor between December 2020 and December 2023.

The period the fine relates to spans eight years to November 2023, during which the bank’s shortcomings resulted in applying incorrect management fees that translated into inflated costs to clients who were being charged excessively for DB’s services.

The bank also incorrectly valued 392 floating rate debt instruments by applying fixed interest rates, affecting portfolio valuations of client accounts and resulting in 92 clients being overcharged for custodian and management fees. This is because the fees were calculated on a portfolio valuation basis.

DB also overstated or understated the valuations of 16 private equity funds, among others, in monthly statements sent to 233 clients due to a combination of an external vendor’s oversight and DB’s lack of appropriate controls.

“In total, DB overcharged client fees of approximately $39 million as a result of these issues,” the regulator said on August 28.

Further failings highlighted included the non-disclosure of investment banking relationships in research reports and incorrect assignment of product risk ratings, including incorrectly assigning a lower product risk rating to 40 exchange-traded funds (ETFs) between August 2012 and December 2020, impacting 93 clients and 265 transactions.

“After applying the correct product risk rating to these ETFs, risk mismatches were identified in 10 transactions where the product risk level was higher than the clients’ risk tolerance level,” the SFC added.