Deutsche Bank conducts internal probe into trading on gold "fix"

* Deutsche Bank resigned gold and silver "fix" seats in May

* Bafin starts investigating Deutsche Bank in mid-2013

By Clara Denina

LONDON, June 19 (Reuters) - Deutsche Bank isconducting its own investigation into trading around the settingof London's daily gold price benchmark, in addition to one beingcarried out by Germany's financial watchdog, sources close tothe matter said.

The German bank had been a member of the century-old gold"fix" - a widely used price set twice a day by five banks in aconference call - for two decades until May, when it resignedfrom the processes for gold and silver.

An internal investigation can be triggered by scrutiny fromexternal regulators as a bank would need to examine its ownprocesses to answer questions raised.

Taking early action as a result of an internal probe mayalso mitigate the impact of any sanction the regulator imposes.

"The external regulator Bafin visited (Deutsche's Londonoffices) over a year ago now and looked at the metals businessand all the benchmarking issues. That's when the internal auditsstarted as well," one source said.

"They (Deutsche Bank) will be thoroughly investigating thetrading activity that has taken place, particularly on binarytrades."

In May, Barclays Plc, one of the five banksinvolved in the gold fix, was fined 26 million pounds ($43.8million) by the Financial Authority Conduct for failures ininternal controls that allowed a gold options trader tomanipulate the setting of gold prices.

German regulator Bafin called on banks in 2013 to tightencontrols and processes around price-measuring mechanisms,including those in precious metals.

"We have been conducting investigations since the middle oflast year," a Bafin spokesman said.

BENCHMARKS PROBED

Regulators across Europe and the United States started toscrutinise benchmarks in several markets at individual banksafter the Libor manipulation case in 2012, for which firms havebeen fined billions of dollars.

Deutsche Bank said it is working with regulators on thetheir review of the gold and silver benchmarks.

"Certain regulators have been reviewing benchmarks,including gold and silver. As we have said previously, we arecooperating with those inquiries," it said in an emailedstatement.

Barclays was the first bank to be charged over attemptedmanipulation of the London gold "fix". The FCA said that sincethe incident, the bank has "enhanced its systems and controls inrelation to the gold fixing."

HSBC and Societe Generale, which arestill involved in setting the price of gold, declined to commenton whether they are conducting similar internal probes intotrading during the gold fixing process. Bank of Nova Scotia did not answer requests for comment.

The Gold Fixing Company, which represents banks involved inthe metal's price settlement, is in the middle of a review toensure the process complies with benchmark principles outlinedby the International Organisation of Securities Commissions(IOSCO)- a global umbrella group for market regulators.

A source close to the regulator said that "when banks areaware of the regulator's enforcement processes, they willconduct an internal review along formal legal lines."

Over the past three months, U.S.-based investors and tradershave filed more than 20 separate antitrust claims accusing thefive banks of colluding to manipulate the gold price during thedaily setting process. The banks refute theclaims.

Deutsche Bank would not be the first investment bank tocarry out an investigation into gold trading. UBS saidin its annual report in March it had widened an internal probeof its foreign exchange operations to include precious metalstrading. (Reporting By Clara Denina. Additional reporting by ThomasAtkins in Frankfurt. Editing by Veronica Brown and David Evans)