DFSA Sanctions Credit Europe Bank Dubai Limited and its Former Head of Treasury

Dubai: The Dubai Financial Services Authority (DFSA) announced today that it has accepted Enforceable Undertakings (EU) from Credit Europe Bank (Dubai) Limited (CEBD) and its former Head of Treasury.

The EUs result from a DFSA investigation into trading conducted by the former Head of Treasury, on behalf of CEBD. CEBD is a firm authorised to conduct financial services in the Dubai International Financial Centre (DIFC).

In May 2011, CEBD’s former Head of Treasury, Ozkan Demirkaya, executed a loss-making foreign exchange transaction on behalf of CEBD. To hide the unrealised loss resulting from that transaction, Demirkaya created a fake forward transaction and caused it to be entered into the accounts of CEBD. The effect of the fake forward transaction was that it concealed the full extent of the unrealised loss arising from the earlier transaction in the accounts of CEBD.

In October 2011, after determining that his earlier position was unlikely to recover, Demirkaya disclosed his misconduct and the loss to CEBD. The matter was later reported to the DFSA by CEBD.

The DFSA’s investigation found that the fake forward transaction was not prevented or detected by CEBD because CEBD did not have appropriate systems and controls in place to effectively manage its trading functions and activities.

The DFSA further found that CEBD failed to notify the DFSA of Demirkaya’s misconduct within an appropriate time.

As a consequence of the DFSA’s findings, CEBD has undertaken not to conduct proprietary trading activities until all of the internal control weaknesses identified by the DFSA have been addressed to the DFSA’s satisfaction, and to pay a financial penalty of AED 183,500 (USD $50,000).

In accepting the EU, the DFSA acknowledges that CEBD co-operated fully with the DFSA’s investigation and has taken steps to improve its systems and controls.

Demirkaya has undertaken to the DFSA not to perform any functions in or in connection with the provision of Financial Services or Ancillary Services in the DIFC for a period of three (3) years. He has also undertaken to pay a financial penalty of AED 73,400 (USD $20,000); of which AED 55,000 (USD $15,000) has been suspended indefinitely subject to Demirkaya’s compliance with the EU. The suspended penalty reflects Demirkaya’s acknowledgement of the DFSA’s concerns and his full co-operation with the DFSA’s investigation.

Ian Johnston, Chief Executive of the DFSA said: “The action taken by the DFSA today highlights the importance of Firms having robust systems and controls in place to mitigate the risks associated with their activities. Importantly, when Firms detect conduct that contravenes DFSA administered laws and rules then there is an obligation on them to promptly disclose that activity to the DFSA. A failure to notify the DFSA is likely to result in regulatory action.