DWS Investment Management Americas, a registered wealth advisor, has been directed by the Securities and Exchange Commission to pay a $25 million settlement in response to civil allegations. These allegations center on the company's purported misrepresentations of its ESG (Environmental, Social, and Governance) investment practices and its failure to establish a comprehensive anti-money-laundering program for mutual funds.
Key takeaways from DWS Investment case
- DWS Investment Management Americas, a registered wealth advisor, fined $25 million by the SEC for civil allegations.
- Allegations involve misrepresentations of ESG investment practices and failure to establish an anti-money-laundering program.
- DWS presented itself as an ESG trailblazer but didn't effectively implement ESG policy from August 2018 to late 2021.
- The bank lacked policies to ensure the accuracy of public statements about ESG products.
- Discrepancies in research analysts' adherence to ESG integration policy.
- Sanjay Wadhwa, SEC's Deputy Director, criticized DWS for not following its marketed ESG investment processes.
- Separate regulatory action: DWS didn't ensure mutual funds it advised had AML programs in compliance with regulations.
- Gurbir Grewal, SEC's Division of Enforcement Director, emphasized the importance of AML obligations. DWS fined $6 million for AML action and $19 million for ESG action.
The SEC's first order highlights that DWS positioned itself as an ESG trailblazer, emphasizing its incorporation of environmental, social, and governance considerations into its investment strategies. However, the SEC found that these marketing claims did not align with reality. Between August 2018 and late 2021, DWS failed to effectively implement key aspects of its global ESG integration policy.
Additionally, the SEC order revealed that the bank neglected to formulate and execute policies and procedures aimed at ensuring the accuracy of its public statements regarding ESG-integrated products. Internal evaluations at the company revealed discrepancies among research analysts in terms of their adherence to the ESG integration policy's mandate to assess material ESG risk factors in research and valuation models.
Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement and head of its climate and ESG task force, commented on the matter, stating, "Here, DWS advertised that ESG was in its 'DNA,' but, as the SEC's order finds, its investment professionals failed to follow the ESG investment processes that it marketed."
In a separate regulatory action, the SEC noted that DWS had not ensured that the mutual funds it advised developed and implemented anti-money-laundering programs in compliance with regulations. Gurbir Grewal, director of the SEC's Division of Enforcement, emphasized the significance of these AML obligations, which require mutual funds to establish tailored programs for detecting and preventing money laundering and terrorism financing.
DWS has agreed to pay a $6 million penalty related to the AML action and a $19 million penalty for the ESG action. A company spokesperson expressed satisfaction with the resolution of the matter and highlighted the SEC's recognition of DWS' cooperation and remedial efforts. The spokesperson also underscored that the regulatory orders pertained to issues that the firm had already taken steps to address, particularly in enhancing its AML processes for its U.S. mutual fund business.
Regarding the SEC's ESG Order, the spokesperson asserted, "Following an extensive two-year examination, finds no misstatements in relation to our financial disclosures or in the prospectuses of our funds. We have consistently stated that we stand by our financial disclosures and disclosures in our fund prospectuses."
Source: Barrons
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