RBC Capital Markets agreed to pay nearly $1.1 million as part of a settlement with the Financial Industry Regulatory Authority (FINRA) for failing to establish and maintain a reasonable supervisory system to monitor the suitability of short-term trading recommendations.
The agreement, published Friday, requires RBC to pay a $300,000 fine, $128,643 in restitution, and disgorgement of $653,313. A senior manager at the investment bank must certify to FINRA within 120 days the issues identified regarding its supervisory systems have been remediated.
RBC Capital Markets is part of Royal Bank of Canada.
The details: From January 2017 to December 2018, procedures at RBC required supervisors to closely examine representatives’ short-term trading of preferred stocks. However, “[T]he firm’s electronic surveillance of short-term trading in preferred stock was unreasonably designed, and it failed to monitor for that activity,” according to FINRA.
The system did not have alerts that specifically monitored for short-term trading in preferred stock, the self-regulatory organization found. As a result, nearly 800 recommended syndicate preferred stock purchases during the period led to unsuitable losses for clients and gains for the firm.
The alleged deficiencies resulted in RBC violating FINRA Rules 3110 on supervision and 2010 on principles of trade.
Compliance considerations: FINRA’s settlement included reference to two other recent cases where it levied penalties against RBC for supervision failures.
In December 2021, RBC was fined $550,000 and ordered to pay more than $456,000 in restitution for failing to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with rules regarding representatives’ recommendations of high-yield corporate and municipal bonds. In December 2020, RBC was ordered to pay more than $685,000 in restitution for similar deficiencies affecting supervision of representatives’ recommendations to customers to purchase particular share classes of future education savings plans.
RBC did not respond to a request for comment. The bank neither admitted nor denied FINRA’s findings in reaching settlement.