Deutsche Bank fell afoul of the FCA's review of its AML and sanctions systems in March. The FCA found the bank had a number of issues, including out-of-date software while lacking rigorous reviews of its clients before beginning to transact business.
Speaking to the FT earlier this month, Werner Steinmüller, Deutsche's head of global transaction banking, says the business will be focused on restructuring its operations to meet the regulator's requirements.
The bank has pledged to focus on improving the systems by the end of the year, with the aim of further developing the software during 2017.
A Deutsche Bank spokesperson says: "We are cooperating with our regulators to fundamentally remediate our anti-financial crime programme. We understand the importance of this issue and are committed to and engaged in fixing it.”
Commenting on the development, a number of transaction bankers have been sympathetic to the problems faced by the bank in keeping up with the demanding pace of change, and, at times, lacking the resources to do so.
A UK-based banker says: “The industry is under increased regulatory scrutiny, and don’t know what the regulator will do if you don't comply. But this scrutiny is not just a bank problem anymore; all clients are facing increased checks. It is an increasingly scary time for the banks to operate.”
Deutsche has already made changes to its AML process. It has considerably increased the number of countries on its high-risk list, rising from 30 to 109. It has also stopped onboarding new clients in those countries, or providing them with new services. There have also been in-depth assessments of the higher-risk companies.
Additionally, across all of the businesses and locations, the bank has pledged to only begin transacting with new clients once all know-your-customer and AML procedures have been completed. Previously the bank had begun transacting while checks were being processed.
The FCA also highlighted the outdated Mantas AML platform the bank was using was having a detrimental impact.
A transaction banker at a US financial institution says Deutsche's failings do not come as a surprise.
“These problems have been flagged up in the past," he says. "The movement towards modern platforms was at a good pace before the global financial crisis. But in the post-2008 climate, the regulations being seen are more stringent as standards have gone up.
"This means cash that would have been used on software has been diverted. Millions of dollars is needed for the institutions to bring everything up to the necessary standard. It is a multi-year process."
The same banker adds: "Investing in new systems and technology becomes a lesser priority. The experiences are linked. When faced with a limited sum of cash for investment, it comes down to deciding where the best place is to put it. Most will opt to put it into compliance, not into tech."Bankers say compliance and tech pressure is generating a competitive advantage for new entrants.
The US transaction banker concludes: "The new players have all of the ability but do not have the challenges of the banks. They don't have the same focus on regulation and can invest in developing technology for the sake of it. With their experience the banks should be in a similar position now, but their work and funding has had to be diverted elsewhere."
A delay in introducing new technology represents an opportunity cost to capitalize on big data.
One transaction banker in Europe concludes: “Most of the banking industry have quite old legacy platforms that are not so very well suited for digitalization. Specifically when it comes to data handling, there is a long way to go.”