Deutsche Bank Securities Inc. agreed Monday to pay $12.5 million to the Financial Industry Regulatory Authority for “significant” supervisory failures related to research and trading-related information it disseminated to its employees, called “hoots” or “squawks,” over internal speakers referred to as “squawk boxes.”
Despite multiple red flags regarding the potential dissemination of confidential information, Deutsche Bank failed to establish adequate supervision over registered reps’ access to hoots or their communications with customers regarding hoots, FINRA said.
“Recognizing and responding to red flags is the hallmark of proper supervision, particularly in areas involving confidential information,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement. “Deutsche Bank’s disregard of years of red flags including internal audit findings, risk assessments and compliance recommendations was particularly egregious given the risk that material nonpublic information could be communicated over squawk boxes.”
Deutsche Bank neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
As part of the settlement, Deutsche Bank also agreed to provide a written certification that it has adopted and implemented supervisory systems and written procedures concerning hoots that are reasonably designed to achieve compliance with FINRA rules and federal securities laws.
FINRA found that Deutsche Bank was aware that hoots involving research and trading might contain confidential, price-sensitive information, and that there was a risk that material nonpublic information could be communicated over them.
Despite red flags, “the firm still failed to implement reasonable written policies, procedures and systems governing who should have access to the hoot information, how the employees should handle hoot information, and how supervisors should supervise employees to ensure compliance, and protection of confidential and material nonpublic information potentially communicated over the hoots,” according to FINRA.