The Financial Industry Regulatory Authority (FINRA) Monday fined Deutsche Bank Securities Inc. $12.5 million for sending out internal alerts that might contain confidential information traders and their customers could use.
The internal alerts are called hoots and squawks. They’re communicated over inhouse speakers known as squawk boxes.
FINRA said Deutsche Bank Securities ignored multiple red flags about potential confidential information in the hoots being passed to salespeople and their customers.
There were “significant supervisory failures,” FINRA said.
In addition to paying the $12.5 million fine, Deutsche Bank must certify in writing 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 is the biggest independent regulator for all securities firms doing business in the United States. In 2015, it brought 1,512 disciplinary actions against registered brokers and firms and levied $95 million in fines.
In July, FINRA fined Deutsche Bank Securities $6 million for failing to provide complete and accurate trade data.
It was the biggest fine FINRA had imposed for so-called blue sheet violations.
As part of that settlement, Deutsche Bank agreed to retain an independent consultant to improve the way it keeps and produces trade data.
FINRA said Monday that Deutsche Bank Securities knew hoots about research and trading might contain confidential, price-sensitive information.
“However, for several years, the firm repeatedly ignored red flags indicating that its supervision was inadequate,” the regulator said.
The red flags included internal audit findings and recommendations, multiple internal warnings from members of the firm’s compliance department, and internal risk assessments.
Deutsche Bank Securities still failed to protect possible confidential and material nonpublic information in the hoots.
It didn’t “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,” FINRA said.
Deutsche Bank Securities consented to FINRA’s findings without admitting or denying the charges.
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Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.
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