Investment Bank Compliance Officer Fined by Dubai Regulator and Banned From Working in Dubai Financial Centre for Providing Allegedly False Information
A senior compliance officer employed in Dubai was fined and prohibited from working in the Dubai International Financial Centre, for allegedly providing false information to the local regulator over approximately two years.
Specifically, in June 2017, the Dubai Financial Services Authority fined Anna Waterhouse US $100,000 and prohibited her from performing any function associated with providing financial services in or from the DIFC because she purportedly was “reckless” in providing information to the DFSA “on several occasions” from October 31, 2011 through October 1, 2013, regarding activities of Deutsche Bank’s local private wealth management team that later turned out to be false.
A DIFC specialized independent tribunal – the Financial Markets Tribunal ("FMT") – affirmed DFSA’s decision in August 2019. Last month, Ms. Waterhouse failed in an effort to have a DIFC court hear an appeal of her decision; moreover, the DIFC court evaluating her application for an appeal required her to pay all costs incurred by DFSA in opposing her appeal efforts.
According to the FMT, during the relevant time, Ms. Waterhouse “repeatedly” told the regulator that DB’s local private wealth management team solely referred prospective clients to other DB offices and never provided them with any financial services. However, DFSA claimed Ms. Waterhouse “was reckless as to the truth of these statements and ignored signs that breaches were occurring.” The regulator claimed that Ms. Waterhouse became aware by October/November 2011 that the local private wealth management team was, in fact, acting contrary to local law and engaging in behavior inconsistent with her representations; she did not correct her prior information to DFSA until late 2013, said DFSA.
In March 2015, the DFSA imposed a fine of US $8.4 million on DB’s DIFC branch for the activities of its private wealth management team contrary to its authority.
Ms. Waterhouse denied the DFSA’s allegations, claiming that she believed all statements she made to the DFSA were true. Among other things, Ms. Waterhouse claimed that she relied on members of her compliance team to investigate compliance issues and to escalate them to her, and since no relevant issues were identified to her, she had no reason to believe impermissible activity was occurring. Moreover, she claimed her “role was very demanding and that she lacked the resources to discharge it as fully as she would have liked.”
In an article on BBC News in October 2019, Ms. Waterhouse also claimed that the DFSA took action again her solely after she reported suspicious activities by a major gold refiner in Dubai to local authorities (click here for a copy of the relevant article).
Ms. Waterhouse was DB's head of compliance for the Middle East and North Africa from January 1, 2011 through January 21, 2014, and also Head of Legal from November 2011.
Compliance Weeds: In its 2019 fiscal year, the Commodity Futures Trading Commission on multiple occasions identified deficiencies in chief compliance officer annual reports in enforcement actions and highlighted the role of compliance officers in contributing to their firms’ alleged regulatory violations.
In November 2018, Commerzbank AG agreed to pay a fine of US $12 million to the CFTC to resolve charges that, from December 31, 2012 through at least 2018, it failed to comply with various requirements for swap dealers, and for two years, it filed chief compliance officer annual reports that did not “adequately disclose” deficiencies in compliance of which it was aware.
According to the CFTC, during “much” of the relevant time Commerzbank failed to have an “effective, bank-wide process” to evaluate whether its transactions with certain non-US persons were subject to requirements for swaps under applicable law. Additionally, the CFTC claimed that in 2015, Commerzbank filed a CCO annual report for 2014 that failed to identify material compliance issues identified for the bank in 2014 by an outside consultant that had been retained to evaluate its policies and procedures for adherence to applicable requirements. The CFTC also said that Commerzbank’s 2015 CCO annual report filed in 2016 did not disclose problems with the bank’s large trader reporting compliance that Commerzbank identified in March 2015.
(Click here for background in the article “Swap Dealer Agrees to Pay US $12 Million to CFTC for Noncompliance With Multiple Regulatory Requirements and Allegedly Filing Misleading Annual Compliance Reports” in the November 11, 2018 edition of Bridging the Week.)
More recently, in September 2019, RBC Capital Markets, LLC – a registered futures commission merchant and a wholly owned indirect subsidiary of the Royal Bank of Canada – agreed to pay a fine of US $5 million to the CFTC for allegedly engaging in 385 instances of wash sales involving exchange for physical transactions in interest rate products from December 2011 through October 2015.
In addition to charging RBCCM with violations of applicable law and relevant CFTC regulations for failure to supervise, wash sales and conducting EFPs not in accordance with CME rules, the Commission claimed that the firm failed to disclose certain material compliance issues in its 2015 and 2016 CCO annual reports, among other violations. (Click here for additional background in the article “CFTC Settles Avalanche of Enforcement Actions Alleging Failure to Supervise, Spoofing, Reporting Violations and Providing Misleading Information to the CFTC and FCMs” in the October 6, 2016 edition of Bridging the Week; see section “Purported Failure to Supervise”.)
At the same time the CFTC filed its enforcement action against RBCCM, it announced enforcement actions against two other registrants. In all three actions, the CFTC singled out the acts of the compliance department and/or a compliance officer as contributing to a registrant’s alleged substantive violations.
In an action against the Northern Trust Company, a provisionally registered swap dealer, the CFTC charged the firm with a failure to comply with certain reporting requirements under CFTC rules. The Commission claimed that Northern Trust’s purported reporting issues were attributable to its “failure to devote adequate attention and resources to reporting solutions.” In addition to reporting violations, the CFTC charged Northern Trust with failure to supervise. The CFTC said that the swap dealer’s supervisory breakdown was aided, in part, because the firm “repeatedly hired compliance personnel for the [swap dealer] who possessed some financial industry and regulatory experience, but lacked the specific technical expertise necessary to ensure [swap dealer] compliance.” (For more details, reference the article in Bridging the Week identified above; see section “Claimed Reporting Infractions”.)
Likewise, the CFTC brought and settled enforcement actions against Classic Energy LLC, a registered introducing broker, and Matthew Webb, its former founder, president and sole member, for purportedly defrauding Classic’s customers by executing 63 block trades between customers and a Classic proprietary account based on nonpublic information and for trading opposite Classic’s customers in block trades without disclosing that Classic was acting as a counterparty and not as a broker – the category the clients expected. The CFTC charged Classic with failure to maintain records of block trades and failure to supervise. Among other things, the CFTC claimed that Classic’s compliance officer did not conduct sufficient checks of a system used by a third party retained to maintain audio recordings of block trades for Classic to ensure that communications were being prepared and maintained as required.
Classic and Mr. Webb agreed together to pay an aggregate fine of US $1.5 million to resolve the CFTC’s enforcement action. (For more details, reference the article in Bridging the Week identified above; see section “Misappropriation Charged”.)
Although the CFTC did not bring any enforcement proceedings against any person acting solely as a compliance officer for alleged wrongdoing during its FY 2019 despite highlighting potential issues, the DFSI action against Ms. Waterhouse provides a stark reminder of regulators’ evolving expectations of senior compliance officers and the potential consequences – in at least one jurisdiction – of not meeting those expectations. Indeed, the Securities and Exchange Commission has on multiple occasions during the past few years filed enforcement actions against persons acting solely as compliance officers for their purported role in their employers' regulatory offenses. (For examples, click here to access the article "One CCO Sanctioned, Another Not, in SEC Enforcement Actions" in the August 14, 2015, edition of Bridging the Week and here to see the article "Investment Adviser Chief Compliance Officer Blamed in SEC Lawsuit for President's Theft of Client Funds" in the June 21, 2015 edition of Bridging the Week.)