This month’s key regulatory and compliance-related developments in private banking and wealth management PBI.
Deutsche Bank’s US division fails Federal reserve annual stress tests
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Deutsche Bank USA (DB USA) has failed the Federal Reserve’s annual stress tests, which evaluate the capital-planning practices of the major operating banks in the country. The Federal Reserve Board unanimously objected to the bank’s capital plan. It expressed concerns over material weaknesses in DB USA’s data capabilities and capital-planning controls. The board, however, approved the capital plans of another 34 businesses. The board also found that the bank’s approaches and assumptions which are used to predict revenues under stress are weak. DB USA now needs to take appropriate measures associated with management and analysis of its counterparty exposures under stress. The German bank cleared the Federal Reserve’s first test, which evaluates every bank’s capital levels against a potential recession scenario. The Federal Reserve Board has also issued a conditional non-objection to the capital plans of Goldman Sachs and Morgan Stanley, requiring them to maintain capital distribution levels paid in recent years. Failure in this stress test is not expected to affect dividend payouts, but will require DB USA to make appropriate changes in its US operations, according to Reuters. The bank is also prevented from making distributions to its parent company in Germany without Federal Reserve approval.
Morgan Stanley fined $3.6m for alleged misappropriation of client funds
Misappropriation of client funds Morgan Stanley Smith Barney (MSSB) has agreed to pay a fine of $3.6m to the US Securities and Exchange Commission (SEC) to settle allegations of failure to prevent misappropriation of client funds. MSSB was accused of lacking effective policies to prevent its advisory representatives from misusing client funds. According to the SEC, even though MSSB had policies for certain reviews of disbursement requests, the reviews were not designed to detect or prevent such misconduct. The watchdog said the business’s inadequate policies failed to prevent former broker Barry Connell from misappropriating funds worth $7m from four client accounts for almost a year. The affected clients have been repaid in full, with interest. The broker was arrested in February 2017, and faces criminal charges in connection with the alleged wrongdoings. The case is currently pending. The business agreed to the settlement without admitting or denying the charges.
ASIC takes legal action against AMPFP over alleged failures in insurance advice
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By GlobalDataAMP Financial Planning (AMPFP) has been sued by the Australian Securities and Investments Commission (ASIC) over charges of failing to take action against financial planners who offered conflicted insurance advice to clients in order to earn higher commissions. The corporate watchdog alleged that
AMPFP financial planners engaged in rewriting conduct, under which clients’ insurance policies were cancelled and replaced with similar ones through a new application instead of transfer. Overall, ASIC found six AMP employees advising around 40 life insurance customers to purchase new policies with lower levels of cover between 2012 and 2013 in order to earn higher fees. The AMP unit had been aware of the matter since 2013, ASIC alleged, but failed to take action against the planners for two years. A hearing for the case is scheduled in Sydney on 27 July 2018. AMP has recently also been under scrutiny for revelations by the banking royal commission that it charged fees for no service, and misled regulators. Many of the business’s senior-level employees, including its CEO, chair and chief risk officer, quit soon after the scandal broke.
US judge dismisses $300m broker compensation case against Credit Suisse
A US federal judge has dismissed a lawsuit that accused Credit Suisse of withholding up to $300m of compensation from brokers following the closure of the bank’s 275-broker private banking arm in 2015. According to a report by Reuters, the proposed class-action suit was filed by former Credit Suisse employee Christopher Laver earlier this year in the US District Court in San Francisco, and sought compensation for around 200 brokers. The move followed Credit Suisse’s decision to sign a recruiting pact with Wells Fargo after the closure of its private banking unit. Laver said the Swiss bank failed to offer deferred compensation to those brokers who did not join Wells Fargo under the recruiting agreement, and asserted that those brokers resigned voluntarily. According to Laver, the bank deliberately agreed to the recruiting deal rather than selling the unit, as a formal sale would have led to a change of control requiring the payments. He said Credit Suisse already had knowledge of several brokers unwilling to join Wells Fargo owing to the latter’s difference in business and client base. Judge William Orrick dismissed the case, saying Laver was bound by an arbitration agreement and so could not pursue his proposed class action, and that arbitration details should be worked out in New York.
