Deutsche Bank's Unit Ordered to Pay $25 Million by SEC
Deutsche Bank's unit, DWS Investment Management Americas, is fined $25 million by the SEC for misstatements about ESG investments and failure to develop an effective anti-money laundering program.
Troy D. Hanson
September 25, 2023
The Securities and Exchange Commission (SEC) has taken action against Deutsche Bank, ordering its unit, DWS Investment Management Americas, to pay a $25 million settlement. The charges revolve around misstatements made regarding its ESG (Environmental, Social, and Governance) investment process, as well as its failure to develop an effective anti-money laundering program for its mutual funds.
Failure to Meet ESG Marketing Claims
One of two regulatory orders issued by the SEC involves DWS's marketing of itself as an ESG leader. The company claimed to integrate environmental, social, and governance considerations into its investments, but the SEC found that these claims did not align with reality. From August 2018 to late 2021, DWS neglected to fully implement the provisions of its global ESG integration policy, according to the regulator.
Inaccurate Public Statements on ESG Integrated Products
Additionally, the SEC order revealed that Deutsche Bank failed to establish and enforce adequate policies and procedures to ensure the accuracy of its public statements about its ESG integrated products. Internal analyses conducted by the company indicated that research analysts displayed inconsistent levels of compliance with the firm's ESG integration policy. These analysts failed to adequately consider material ESG risk factors in their research and valuation models, as required by the policy.
DWS Investment Management Americas has agreed to pay the $25 million penalty imposed by the SEC without admitting or denying the findings. This case serves as a reminder to financial institutions of the importance of transparent and accurate marketing practices, particularly concerning ESG investments.
DWS Faces Penalties in Regulatory Actions
DWS, a prominent financial services firm, has been ordered by the Securities and Exchange Commission (SEC) to pay significant penalties in two separate regulatory actions.
The SEC found that DWS had advertised that environmental, social, and governance (ESG) investing was deeply ingrained in its operations. However, the order determined that the firm's investment professionals had failed to adhere to the ESG investment processes it had promoted.
Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement and head of its climate and ESG task force, emphasized the discrepancy between DWS' marketing tactics and its actual practices.
Lack of Anti-Money Laundering Program
In addition to the ESG violations, the SEC also highlighted DWS's failure to ensure that mutual funds it advised developed and implemented an anti-money laundering (AML) program to meet regulatory requirements. Gurbir Grewal, Director of the SEC's Division of Enforcement, emphasized the importance of individualized AML programs for mutual funds to detect and prevent money laundering and terrorism financing.
DWS has agreed to pay a penalty of $19 million in relation to the ESG action and an additional $6 million penalty for the AML action.
A spokesman for DWS expressed satisfaction with the resolution of the matter and acknowledged the SEC's recognition of the firm's cooperation and efforts to address the issues. The spokesperson stated that DWS had already taken steps to enhance its AML processes for its U.S. mutual fund business, indicating the firm's commitment to improving its compliance measures.
Furthermore, the spokesman asserted that, despite the SEC's findings, no inaccuracies were identified in DWS' financial disclosures or the prospectuses of its funds. The company remains steadfast in its stance that it stands by its financial disclosures and disclosures in its fund prospectuses.
In conclusion, DWS faces substantial penalties for its failure to adhere to ESG investment processes and the lack of an effective AML program. The resolution of these regulatory actions brings attention to the need for financial institutions to ensure transparency and compliance with regulatory standards.