The Germans have singled out Keith Percy, chief executive of MGAM, and Glyn Owen, chief investment officer for particular attention. The role of Mike Wheatley, compliance director for the fund management business is also being scrutinised. Michael Dobson, chief executive of Deutsche Morgan Grenfell, the investment banking business is not regarded by German exceutives as a candidate for dismissal.
No action will be taken until an exhaustive internal audit is completed early next month. However, Deutsche Bank executives are determined to demonstrate how seriously they are taking the problems at MGAM. They are not prepared to indulge in any buck passing and will insist on heads rolling irrespective of any mitigating circumstances.
Peter Young, the suspended manager of two of the funds at the heart of the affair, reported directly to Mr Owen, who in turn reported to Percy.
Mr Young has had his assets frozen and his passport has been seized while investigations designed to unravel the complex web of investments he had devised is unravelled.
Mr Percy said yesterday that he would not be resigning and that he would await the outcome of the internal investigations. Meanwhile, he is taking on personal responsibility for oversight of the three European funds, which are now being managed by two of MGAM's most seasoned executives.
Mr Percy is one of the industry's most respected figures. Initial findings of the internal inquiry suggest he was an innocent victim of Mr Young's disobedience and deception. However, Deutsche Bank is determined to restore its good name and is prepared to take robust action in order to ensure there is no question of a whitewash.
Responsibility for overall internal regulation of the fund management business will be transferred from London to Frankfurt. Deutsche Bank is also prepared to shift other areas of responsibility and will overhaul all its procedures to reflect the findings of the internal report.
Repercussions from the Morgan Grenfell unit trust affair could also spread across the industry. Pressure is already mounting for a review of existing investor protection schemes, including the provision of a "regulatory health warning".
One aspect highlighted by the affair is the entire business of investing in European markets itself. No investors have lost money, after Deutsche Bank, the parent company of Morgan Grenfell Asset Management, pumped pounds 180m into the funds to ensure losses were covered.
However, many of the obscure unlisted companies in which Mr Young invested were notable for the low quality of regulation and disclosure of their parent markets. In financial circles, European markets are themselves a by-word in irregular practices, and poor disclosure.
Last week, the Italian Olivetti group seemed on the brink of collapse after its board appeared to have deliberately covered up the full extent of its losses. Many of the investors are supposedly sophisticated UK institutions.
Germany only recently introduced its first provisions against insider trading. Front-running, the practice whereby a stockbroker can offer shares exclusively to one institution, knowing the price will then rise, and profiting from its remaining holding, remains legal in other European countries.
Guy Knight, marketing director of ShareLink, a "no-frills" private clients stockbroker, said a regulatory health warning for other European markets would be useful for many private clients.Reuse content