Hong Kong’s Securities and Futures Commission has reprimanded Deutsche Bank Aktiengesellschaft (DB) and imposed a fine of HK$23.8 million for multiple regulatory breaches, its second fine for international banking giants this week.
These included overcharging clients on management fees, misallocating product risk ratings, and failing to disclose investment banking relationships in research reports.
On Tuesday, SFC just reprimanded and fined HK$4.2 million the Hongkong and Shanghai Banking Corporation for breaching a disclosure requirement in publishing research reports on Hong Kong-listed securities over an eight-year period.
The disciplinary action follows investigations triggered by several self-reports made by DB between December 2020 and December 2023.
The SFC found that, due to procedural gaps and implementation errors between November 2015 and November 2023, DB failed to apply agreed discounted management fee rates for 39 discretionary investment portfolios, resulting in overcharges. Additionally, the bank incorrectly valued 392 floating-rate debt instruments using a “fixed” rate method, affecting portfolio valuations and leading to overcharged custody and management fees for 92 clients.
Because of oversights by an external supplier and inadequate monitoring by DB, the value of 16 private equity funds and three real estate funds was misstated in monthly statements sent to 233 clients. This led to 32 clients being overcharged on custody fees. In total, these issues resulted in approximately HK$39 million in overcharges.
The regulator also found that DB failed to disclose investment banking relationships with several Hong Kong-listed companies in 261 company reports and 1,590 industry reports published between September 2014 and September 2021, due to shortcomings in its research disclosure system.
Furthermore, from August 2012 to December 2020, DB incorrectly assigned lower risk ratings to 40 exchange-traded funds, affecting 93 clients and 265 transactions. After applying correct ratings, ten transactions were identified as mismatched, where the product risk exceeded the clients’ risk tolerance.
The SFC considered DB’s cooperation and remedial actions in determining the penalty.
