Deutsche Bank is facing a rash of contractor departures in vital compliance areas such as anti-money laundering after angering its freelance workforce by demanding they take a 25 per cent pay cut in response to a change in UK tax law.
As many as 50 out of 53 workers in Deutsche’s London-based “change-management” team specialising in global financial crime are considering leaving by the end of March, according to two people close to the situation.
The contractors are upset by changes made to the bank’s hiring policy on freelancers ahead of reforms to the UK’s off-payroll tax rules, known as IR35, which have been designed to boost receipts by cracking down on “disguised employment”.
From April medium and large companies will be responsible for assessing the employment status of any contractor they hire who uses a limited company, with they and their recruitment agencies held liable for any unpaid income tax and national insurance contributions if they wrongly classify workers as self-employed.
As a result, Deutsche has decided to no longer work with contractors who use limited companies to bill for their services.
“People are willing to walk and there will be a massive impact” on active projects, one of the people affected told the Financial Times. “Huge swaths of work will be mothballed.”
Some of the work being done by the contractors is starting to be outsourced to Deutsche’s back-office centres in Romania and India “in an attempt to keep projects running”, one of the people said.
Another person familiar with Deutsche’s processes said it was normal to start projects in the bank’s main offices before passing them on to lower-cost offices for implementation and it would not result in a drop in quality.
The team was set up five years ago with the task of monitoring and improving the bank’s global compliance with financial crime regulation, in particular anti-money laundering.
The dispute with contractors comes at a crucial time for the lender. Deutsche has been struggling to improve its compliance systems in recent years as it battles with high staff turnover, cost pressures and poor IT infrastructure.
In late 2018, German financial regulator BaFin ordered executives to take urgent action to prevent money laundering and terrorism financing, appointing an independent auditor to check the lender’s progress for the next three years.
Last year the FT reported the bank had found serious failings in its UK anti-money laundering and sanctions controls that allowed cheques and high-value electronic payments to be processed without proper screening.
From March 30, Deutsche has said it will only work with contractors who are willing to join the payroll of a recruitment outsourcing agency it uses, Resource Solutions. Those that do will have to accept a cut in take-home pay of about a quarter, the people affected said. The reduction is inclusive of various employment overheads such as paid holidays and national insurance contributions.
“If I accept Deutsche’s terms, I can’t just turn round to my mortgage lender and say, ‘can you drop my mortgage?’ I’m not even including all the other bills I’ve got. They would tell you where to go,” one contractor said.
Contractors based in other teams within the bank, such as data protection, have been made the same offer and may also cut ties with the bank, one of the people with knowledge of the situation said.
Some employees who had left after being made a similar offer late last year had to be brought back into Deutsche’s UK office for a week in January to hand over their data protection responsibilities to new staff, the person said. The lender had to pay “big money” for them to agree to do this, they added.
“We are working closely with the individuals concerned to ensure that their compensation remains equitable and fair,” a spokesman said, adding the bank is confident it can cope with any departures. “We already have over 1,500 full time AFC [anti-financial crime] staff.”
As part of its latest strategic overhaul Deutsche has committed to spending €4bn to improve its controls and will combine its risk, compliance and anti-financial crime functions in an attempt to reduce errors.