Deutsche brokerage faces penalty for 19-year recordkeeping breach
Ropes & Gray is advising Deutsche Bank’s US brokerage, which has agreed a US$2.5 million settlement for failing to maintain an adequate electronic recordkeeping system for almost two decades.
The Financial Industry Regulatory Authority (FINRA) announced the penalty in a settlement order dated 31 December.
It said that between 1998 and 2017, the New York-based Deutsche Bank Securities Inc (DBSI) failed to follow required protocols for electronic data storage while electronically storing millions of records including its general ledger, supervisory procedures, customer statements and onboarding documents, and notices to customers.
Among DBSI’s stated shortcomings was a failure to identify “any system, location, or database” where documents should be stored, with the brokerage instead storing records on shared electronic drives in a format that was “susceptible to alteration or deletion” rather than the required non-rewriteable, non-erasable format.
According to the order, the brokerage also did not follow Securities Exchange Act rules that required it to notify FINRA 90 days prior to storing any records electronically.
FINRA said that DBSI did not retain a third-party vendor that could access the documents and provide requested electronic records to the Securities and Exchange Commission (SEC), in the event DBSI was unable to provide the records itself.
DBSI also failed to designate a responsible “department, team, or individual” to oversee compliance with its recordkeeping obligations, and stopped short of implementing an audit system to effectively produce accountability for the record input process.
“Protecting the integrity of these required records is an essential obligation for broker-dealers because review of such records is the primary means by which regulators protect investors and examine for misconduct, including fraud and sales practice violations,” the order said.
Deutsche Bank, which enlisted Ropes & Gray partner Lisa Bebchick for the matter, did not respond to a request for comment from GBRR.
FINRA’s in-house senior attorney Michael Jaeger oversaw the regulator’s proceedings on the matter.
In the report, FINRA said that after it notified DBSI it was not in compliance with its recordkeeping obligations, the unit “promptly undertook remediation efforts” that included a risk-based remediation plan to address its record retention obligations.
Deutsche accepted the fine and a censure on 23 December.
The letter also orders DBSI – within 90 days of its acceptance – to certify in writing to FINRA that the firm has adopted and implemented policies and procedures “reasonably designed to ensure compliance with the federal securities laws and FINRA rules” addressed in the settlement.
Counsel to Deutsche Bank Securities Inc
- Ropes & Gray
Partner Lisa Bebchick in New York
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