The Securities and Futures Commission (SFC) of Hong Kong has issued a reprimand and a fine of $23.8m to Deutsche Bank due to multiple regulatory infractions.  

These breaches include the overcharging of clients on management fees, incorrect assignment of product risk ratings, and the failure to disclose investment banking relationships in specific research reports.

The SFC’s actions were prompted by investigations that followed self-reports submitted by the bank from December 2020 to December 2023.

The investigation revealed that between November 2015 and November 2023, Deutsche Bank had several shortcomings in its processes.

It did not apply agreed discounted management fee rates to 39 Discretionary Portfolio Management accounts, leading to overcharges.

Additionally, 392 floating rate debt instruments were incorrectly valued using “fixed” interest rates, which adversely affected the portfolio valuations of clients’ accounts, resulting in 92 clients being overcharged for custodian and management fees.

Furthermore, the SFC found that 16 private equity funds and three real estate funds were inaccurately valued in monthly statements sent to 233 clients.

This misvaluation stemmed from an external vendor’s oversight and a lack of adequate controls within the bank, causing 32 clients to incur overcharged custodian fees based on these valuations.

Overall, the bank overcharged clients by approximately $39m due to these issues.

The SFC has also identified that Deutsche Bank failed to disclose its investment banking relationships with various companies listed in Hong Kong across 261 single stock reports and 1,590 industry reports issued between September 2014 and September 2021.

This oversight was attributed to deficiencies in the bank’s research disclosure system.

Moreover, the SFC noted that Deutsche Bank incorrectly assigned lower product risk ratings to 40 exchange-traded funds (ETFs) from August 2012 to December 2020, affecting 93 clients and 265 transactions.

The application of the correct risk ratings revealed mismatches in 10 transactions where the product risk level exceeded the clients’ risk tolerance.

The SFC concluded that Deutsche Bank had not acted with the necessary skill, care, and diligence in the best interests of its clients and the market’s integrity.

The bank also failed to ensure that the information provided to clients was accurate and not misleading, did not comply with disclosure requirements in its research reports, and did not adhere to relevant regulatory standards.