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Morgan Stanley accused of duping ECB by creating token job title

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A senior banker has alleged that Morgan Stanley manufactured his job title to dupe European regulators into believing the bank had moved top staff to Frankfurt to comply with post-Brexit rules.

The banker joined Morgan Stanley in Frankfurt in April 2021 on a salary of €375,000 plus bonus. He was made an executive director, the rank below managing director, and formally given the title of “head of loan trading”.

But the banker told a Frankfurt court, which was hearing an appeal about his dismissal from Morgan Stanley, that he was instructed by an executive early on not to actively use that title.

His superior told him that the “head of loan trading” title “only existed on paper” and had been created solely to meet regulatory requirements, the banker told the court at the time of the hearing in December.

Since the UK’s exit from the EU, the European Central Bank has pushed international banks to manage their EU business with local staff rather than relying on London-based decision makers, urging banks to move “sufficiently senior key risk-takers and proper reporting lines into the European entity”.

The watchdog has made it clear that it will not accept “empty shells” that are formally in charge of day-to-day decisions in the EU but are, in fact, directed by bankers in London.

A panel of three judges rejected the bank’s argument that the banker had been a so-called material risk-taker in its Frankfurt office, stating that it had not been made “obvious” that the banker was actually in charge of wider managerial tasks, and upheld the banker’s appeal against his dismissal.

The public verdict, published this month, does not name the bank. But four people with direct knowledge of the case told the Financial Times that it was Morgan Stanley.

People familiar with the court case said that Morgan Stanley disputed the banker’s statements in court, telling the judges that the banker was never instructed not to use his title and denying that it was a token title.

The bank argued that the employee called himself “head of loan trading” on his LinkedIn profile and pointed to at least one occasion when he used it as a conference panellist.

The banker told the court that his job had been the origination and sale of distressed loans in Germany, Austria and Switzerland, rather than overseeing a trading desk in charge of a significant business area that could impact the bank’s overall risk profile.

Under changes to Germany’s employment law implemented after Brexit, material risk-takers in banks can also be fired more easily than normal employees, who enjoy a high level of employment protection.

The Frankfurt court ruled that the plaintiff’s formal position in an organisational chart was not sufficient to qualify him as a material risk-taker, finding that the actual tasks and competencies involved were what mattered.

The court was not persuaded that the plaintiff was given relevant “tasks, responsibilities and competencies”, and ruled that “he was no risk-taker” from a legal point of view.

Morgan Stanley is appealing against the verdict. The bank, the ECB and the banker declined to comment.

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