The Financial Industry Regulatory Authority (FINRA) announced on Monday,
August 8 that it had fined Deutsche Bank Securities Inc. $12.5 million
for failing to adequately supervise certain information circulated to
The information, also known as ‘squawks’ or ‘hoots,’
involved research and knowledge related to trading. According to FINRA,
there were a variety of red flags that should have prompted Deutsche Bank
to create some form of supervision regarding employee access to squawks,
and how they communicated with customers about information gleaned through
Through their investigation, FINRA discovered that not only was Deutsche
Bank aware of the squawks, they were aware that they may contain price-sensitive
and confidential information regarding trading and research. Some of the
red flags FINRA noted that the firm ignored included internal risk assessments,
several internal warnings given by members of Deutsche Bank’s compliance
department, and internal audit findings and recommendations.
The Chief of Enforcement and Executive Vice President of FINRA Brad Bennett said:
"Recognizing and responding to red flags is the hallmark of proper
supervision, particularly in areas involving confidential information.
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."
Over the years of warnings, the firm neglected to implement how employees
should handle information from squawks, how employees should be supervised
to guarantee compliance, what reasonable written policies should be introduced,
how material and confidential nonpublic information possibly transmitted
via the squawks should be protected, and what systems and procedures should
govern which employees had access to the information.
Deutsche Bank consented to the entry of FINRA's findings in settling
this matter, but did not admit to or deny the charges.