The U.S. Securities and Exchange Commission (SEC) has imposed a $25 million fine on DWS Investment Management Americas Inc. (DIMA), a subsidiary of Deutsche Bank AG (NYSE:DB), for misstatements related to its Environmental, Social, and Governance (ESG) reporting, as well as for failing to establish an anti-money laundering program. The charges were announced on Monday.
The SEC's crackdown reflects its increasing focus on "greenwashing", a practice where companies exaggerate their ESG credentials, as well as efforts to ensure that a fund's name aligns with its investment objectives. Last week, SEC regulators voted 4-1 to require ESG and other theme-based funds to comply with the Names Rule, which mandates that funds hold at least 80% of their assets in the type of investment most closely associated with the fund's name.
In the first enforcement action, the SEC found that DIMA had failed to develop and implement an Anti-Money Laundering (AML) program in line with the Bank Secrecy Act and Financial Crimes Enforcement Network regulations. The regulator noted that DIMA had not established policies and procedures to detect activities indicative of money laundering and conduct AML training specific to its mutual funds' business. Consequently, DIMA agreed to a cease-and-desist order and a $6 million penalty.
"The SEC’s order finds that DWS advised mutual funds with billions of dollars in assets yet failed to ensure that the funds had an AML program tailored to their specific risks, as required by law," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
In the second enforcement action, the SEC charged DIMA with making materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for its ESG-integrated products. The regulator found that from August 2018 until late 2021, DIMA failed to adequately implement certain provisions of its global ESG integration policy, leading investors and clients to believe it was more committed to ESG considerations than it was in practice. As a result, DIMA agreed to a cease-and-desist order, censure, and a $19 million penalty.
"Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words," said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force.
The penalties have impacted Deutsche Bank's share price, which fell close to 1% in morning trading on Monday. The bank's shares have declined more than 9% so far this year.
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