Mr Smith is currently chief executive of Morgan Grenfell Development Capital, Deutsche Morgan Grenfell's venture capital arm, and is heading the investigation into the scandal.
His appointment will reflect the investment bank's willingness to pay the full price for the breakdown of controls that allowed Mr Young to manipulate the performance of three European investment funds.
Mr Young has been dismissed and is currently under investigation by the Serious Fraud Office. There is no suggestion that any of those who are leaving DMG were aware of his deception, which involved hidden speculative investments and alleged personal gain.
DMG and its German parent Deutsche Bank will decide this week whether Mr Percy should quit the organisation entirely or merely be demoted.
"No decision will be taken until we have completed our preliminary investigation," a DMG spokesman said yesterday.
Mr Young established a network of Luxembourg companies, which allegedly concealed the extent of the funds' holdings in a series of high-risk UK, continental and US stocks.
Investigators at accountants Ernst & Young have now established that a payment from Russ Oil, one of the Luxembourg companies, allegedly helped Mr Young buy a luxury pounds 450,000 house in Buckinghamshire in April.
The firm's ownership is still a mystery, as its capital consists of bearer shares, which allow the holders to hide their identity.
Russ' directors, however, include two Swiss lawyers Jeurg Wyler and Marco Wolf, whom Mr Young used to set up the network and whose Zurich-based law firm is also key to the inquiry.
DMG's former star fund manager has previously denied allegations that he gained personally from his investment activities.
He has since kept a low profile after an SFO raid on his Amersham home two weeks ago and after gaining an injuction to stop newspapers printing compromising pictures of him with two girls.
Top management has been sympathetic to pleas from MGAM clients that it would be unfair if Mr Percy lost his job, but they are also keen not to whitewash the bank's responsibility.
One banking source said it was his gut feeling that Mr Percy would be asked to resign.
Others who are expected to go are Glyn Owen, MGAM's chief investment officer, Graham Kane, managing director of the unit trust business and Mike Wheatley, compliance director for the fund management arm.
Mr Smith's primary investigation was designed to identify management and structural issues raised by the Young affair.
The Ernst & Young investigation, however, headed by David Sherwin, will continue for the next few weeks.
DMG has already taken control of six of the 14 Luxembourg companies identified so far after Deutsche Bank injected pounds 180m into the European funds.
Six of the other firms are also under its ambit, after being folded into two companies, Oral Med and Medtech, which held a pounds 64m investment in British Biotech.
These include ScandiTech and Mat Tec, which invested in Ashurst Technology, which is quoted on the Alternative Investment Market. The 13th secret Luxembourg company, Litia, was also mostly owned by Scanditech and invested in Ashurst.
That leaves Russ Oil as the key company in the DMG enquiry, in addition to Solv-Ex, a US oil firm under investigation there, which first prompted regulators to look at Mr Young's activities.
Last week Solv-Ex denied it had paid kickbacks to Mr Young in return for DMG's investment in three equity and bond issues.Reuse content