Deutsche Bank’s decision to cut bonuses for employees who used messaging services for business communications inappropriately reflects the impact of a US investigation that has been felt throughout the financial services industry.
According to insiders, the bank plans to reduce variable pay for those employees who were found to have used unapproved devices or messaging apps, which breaches the company’s policies.
Deutsche Bank is one of several global banks that have paid more than $2 billion in fines to settle an industry-wide investigation into whether bank staff used unauthorised communication channels. This penalty results from employees using messaging apps and devices not authorised by the bank, thus increasing the risk of sensitive information being leaked.
This behaviour also poses a significant compliance risk, which can lead to regulatory sanctions, financial penalties, and reputational damage.
Deutsche Bank has implemented new software and taken other measures to address the issue, and their senior executives had their pay cut last year over this issue. The bank’s consequence management framework will impact employee performance evaluation, individual compensation, and promotion. It could lead to disciplinary measures, depending on the number and severity of violations.
Impact of unauthorised messaging on big US companies
The US probe into unauthorised messaging has had far-reaching effects on the banking industry. Major financial institutions, including Citigroup, Goldman Sachs, and Morgan Stanley, have promised to hire compliance consultants to review their monitoring and archiving work-related communications policies. This move aims to prevent any potential violation of industry rules and to avoid falling foul of regulatory requirements.
The Securities and Exchange Commission (SEC) probe is still ongoing and has reportedly expanded to include hedge funds and asset managers. Bloomberg has also reported that Societe Generale’s US unit is under scrutiny, suggesting that smaller broker-dealers could now be potential targets. This expansion of the probe highlights the importance of compliance with industry rules and the need for financial institutions to ensure that their operations are in line with regulatory requirements.
Deutsche Bank’s investment bankers are already on track for a smaller bonus pool this year. Bloomberg reports that variable compensation in the division advising companies on deals and issuing debt and equity may drop by as much as 40%. However, the trading unit, which performed much more strongly, may see a bump in bonuses of around 10%.
Industry regulations have long required banks to archive business communications to ensure that regulators can access them if necessary at a later stage. However, the proliferation of private messaging tools outside banks’ control has made it more challenging to maintain compliance with these regulations. As a result, banks must ensure that they have robust systems and policies to prevent unauthorised messaging and ensure that all work-related communications are archived correctly.