Regulator warns Deutsche Bank over commodity trading controls

Germany’s financial watchdog has warned Deutsche Bank that the lender had insufficient controls in place to prevent manipulation of commodity prices, as commodity markets come under increased scrutiny from global regulators.

Deutsche received a letter from BaFin, the German regulator, in April telling the bank it had found faults in the lender’s internal processes around the reporting of commodity prices, according to people familiar with the investigation.

The Frankfurt-based lender has now been ordered to do its own investigation to see whether manipulation of commodity prices took place.

The development comes just months after Deutsche announced it was significantly scaling back its commodities arm amid increased regulatory and capital costs that have made the business unattractive for banks.

Shut down

The lender has since shut down trading desks dedicated to energy, agriculture, dry bulk and freight and base metals. Other commodity businesses have been transferred to Deutsche’s non-core bank where they will be wound down or sold off, while some parts remain active.

A spokesman for Deutsche Bank said: “As we announced in 2013, we significantly scaled back our commodities business, and exited entirely non-precious metals trading. As we have previously said, we continue to co-operate with authorities in their industry-wide review of certain benchmarks and are investing to further improve our control environment.”

BaFin declined to comment.

Commodity prices across a range of markets such as oil, iron ore and thermal coal are collected by external agencies such as Platts and Argus who base their prices on reported figures from banks. Bafin’s investigation at Deutsche studied the risk controls in place at the bank for managing and supervising how prices were submitted.

A separate investigation by BaFin into whether manipulation of gold and silver prices took place at Deutsche is ongoing.

Deutsche put its seat in the daily gold and silver price fixing in London up for sale in January, and announced it would withdraw from both seats in April after failing to find buyers. Deutsche, along with the other four banks still participating in the daily London fix – Barclays, Bank of Nova Scotia, Société Générale and HSBC – are facing US class action lawsuits over alleged gold price rigging. They are contesting.

Bafin’s move comes as regulators scrutinise a string of financial reference rates including the gold fix after global investigations into Libor and foreign exchange rates uncovered evidence of attempted market rigging by a large number of institutions.

– (Copyright The Financial Times Limited 2014)