Deutsche Bank Securities Ltd. has finally settled its long-running battle with securities regulators over its role in the collapse of the non-bank sponsored asset-backed commercial paper (ABCP) market back in 2007.
The Investment Industry Regulatory Organization of Canada (IIROC) announced today that a hearing panel has approved a settlement agreement between IIROC staff and Deutsche Bank Securities (DBS), with the firm admitting that in late July and early August 2007, “it failed to engage” the firm’s compliance department with emerging issues in the ABCP market. As part of the settlement, the firm agreed to pay a fine of $1 million.
Specifically, the settlement agreement indicates that DBS didn’t alert its compliance department to an email from ABCP sponsor, Coventree Inc., in late July 2007, which detailed the subprime exposure of its deals. It notes that DBS took the position that it was Coventree’s responsibility to distribute the information to investors, and so it did not inform its clients, or its compliance department, about the content of that email. Additionally, the agreement says that the compliance department wasn’t made aware of emerging liquidity issues in the ABCP market when they first arose.
“Compliance was not aware of the receipt of the July 24th email or of the worsening market conditions in third-party ABCP and the potential for a market disruption,” the agreement says; and this amounts to misconduct on the part of the firm.
The settlement brings to a close a prolonged legal battle over IIROC’s efforts to discipline the firm.
DBS initially tried to have the proceedings against it stayed by IIROC. That motion was denied, and subsequent appeals to the Ontario Securities Commission (OSC), Ontario divisional court, and, finally, last October, the Court of Appeal for Ontario, also failed. Now, the case has finally been settled.