A former Securities and Exchange Commission official has been appointed to monitor an overhaul of Deutsche Bank AG’s systems for reporting trades in its giant derivatives book.
Paul Atkins was named to the role by a federal judge on Thursday, following a request by the Commodity Futures Trading Commission. Last year, that agency fined Deutsche Bank$2.5 million for failing to make timely and accurate reports of derivatives trades known as swaps.
A spokesman for Deutsche Bank declined to comment. The bank has previously said that it and the CFTC “have agreed on steps to resolve this matter [and] continue to work on enhancing our reporting systems.” Mr. Atkins couldn’t be reached for comment.
“Inaccurate and untimely reporting of swaps data undermines the integrity of the markets,” U.S. District Judge William Pauley III wrote in his opinion. “The consequences are significant.”
He further noted this was “particularly true” for Deutsche Bank, saying the bank “reportedly commands one of the largest derivatives portfolios in the world.” The bank said its exposure was a notional, or face value, $47 trillion as of last year.
The unusual appointment of an outside monitor is the most vivid example of the scale of technology challenges at big banks, which face increasing technology costs at a time when revenues are being squeezed by higher capital requirements and low interest rates.
Banks say swaps trades aren’t simple to track, requiring coordination of dozens of previously incompatible systems that weren’t designed for real-time reporting. The swaps-reporting rules are meant to avoid the opacity that plagued derivatives markets in the financial crisis and kept regulators in the dark about the extent of bank exposures.
Judge Pauley had declined to accept Deutsche Bank and the CFTC’s recommended monitor, the consulting firm Chatham Financial. Mr. Atkins must within three months give the court a timeline for the necessary fixes to the bank’s systems and procedures.
The CFTC this year has also fined J.P. Morgan Chase & Co., Wells Fargo & Co., and Barclays PLC for violations related to reporting swaps trades. Those problems were resolved, the CFTC said at the times of the fines.