Deutsche Bank's compliance revamp will be bumpy journey

[September 23, 2016]  By Arno Schuetze and Kathrin Jones

FRANKFURT (Reuters) - Deutsche Bank is going for long-term solutions rather than quick fixes in setting up its new compliance team to ensure the bank can put behind it the problems that have cost it billions of euros in fines, the bank's regulatory boss said.

Nearly a decade on from the financial crisis, Deutsche Bank is still struggling to recover from a string of scandals and costly litigation.

It has already paid more than 12 billion euros ($13.5 billion) since 2012 to resolve issues such as the rigging of interest rates, carbon trading fraud schemes and sanctions violations. Germany's biggest bank is also fighting a $14 billion demand from the U.S. Department of Justice to settle a mortgage mis-selling case.

Chief Regulatory Officer Sylvie Matherat, who was promoted to board level by CEO John Cryan, said she needed at least another year or so to complete the compliance set up.

"If you really want to solve a problem in a sustainable manner, it will take longer and will be more difficult," Matherat told Reuters in an interview.

"The current management team is trying not to do quick fixes. It's much better to clean up properly. But that takes time and the journey can sometimes get a bit bumpy."

She said that by year-end the bank will employ 2,200 people in compliance and anti-financial crime, 60 percent more than in 2014.

Germany's financial watchdog Bafin has praised improvements at Deutsche Bank under Cryan and said that the bank is on the right track.

Cryan, who took over as CEO last year, said in July that he hoped to draw a line under the litigation issues this year.

Matherat said: "Of course we would be happy to settle the biggest cases as quickly as we can. But the timing does not only depend on us."

Some major legal headaches remain including the investigation into alleged misconduct involving mis-selling of mortgage-backed securities, the manipulation of foreign exchange rates, sanctions violations in dealings with Iran as well as money laundering and suspicious equities trades in Russia.

Deutsche Bank has appointed law firm Latham & Watkins when dealing with the DOJ, people familiar with the matter said. Matherat declined to comment on the DOJ case.

A logo of a branch of Germany's Deutsche Bank is seen in Cologne, Germany, July 18, 2016. REUTERS/Wolfgang Rattay/File Photo

FRONT LINE

Matherat emphasizes the importance of spotting potential problems early and that staff need to be aware of who their customers are.

"I tell our traders: your client - your problem! The front line is where problems should be addressed first," Matherat said.

Deutsche Bank is being investigated over so-called "mirror trades" in Russia, which may have allowed clients to move money from one country to another in 2014 without alerting the authorities.

"An internal report, which we submitted to our regulators in the autumn, revealed clear deficiencies in our systems and controls," Matherat said. "Since that time, we have worked to address these deficiencies, taken disciplinary measures with regards to certain individuals and are fundamentally reviewing our client onboarding and monitoring processes."

Matherat has set up internal Financial Intelligence Units to investigate transactions for potential breaches of conduct and identify illegitimate trading patterns and dubious clients.

"You have to be able to make a lot of links and you need to have very good data analysis capabilities and very good IT processes," she said.

(Additional reporting by Andreas Kroner. Editing by Jonathan Gould and Jane Merriman)

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