The Securities and Futures Commission (SFC) has fined Deutsche Bank HK$23.8m for several regulatory breaches.
These include overcharging clients on management fees – to the effect of HK$39m, incorrectly assigning product risk ratings, and failing to disclose investment banking relationships in research reports.
The SFC’s disciplinary action follows investigations triggered by self-reports made by DB between December 2020 and December 2023.
Between November 2015 and November 2023, DB was found to have:
- Failed to apply the discounted management fee rates agreed with clients to 39 discretionary portfolio management accounts due to shortcomings in its processes.
- Incorrectly valued 392 floating rate debt instruments by applying fixed interest rates, which in turn affected the portfolio valuations of clients’ accounts, resulting in 92 clients being overcharged custodian and management fees.
- Overstated or understated the valuations of 16 private equity funds and three real estate funds in monthly statements sent to 233 clients due to a combination of an external vendor’s oversight and DB’s lack of appropriate controls to ensure fund prices were updated by an external vendor. This meant 32 clients were overcharged custodian fees.
The SFC also found that DB failed to disclose its investment banking relationships with various Hong Kong-listed companies in 261 single stock company reports and 1,590 industry reports issued between September 2014 and September 2021.
Furthermore, DB incorrectly assigned a lower product risk rating to 40 ETFs between August 2012 and December 2020, impacting 93 clients and 265 transactions.
The regulator deemed DB failed to act with due skill, care and diligence, in the best interests of its clients and the integrity of the market, but in deciding the sanctions noted the breaches were inadvertent and the firm has remediated the issues and strengthened its internal controls and systems refunded the overcharged fees to affected clients.
