RBC Capital Markets has agreed to pay $360,000 to settle charges that it failed to monitor thousands of employees' outside brokerage accounts for compliance with the firm's trading restrictions, according to the Financial Industry Regulatory Authority (Finra).
The New York City-based firm also was censured by the regulator.
Between June 2018 and February 2021, RBC failed to establish a supervisory system that timely tracked, reconciled, and reviewed paper statements from employees outside accounts statements, according to the Finra letter of acceptance, waiver and consent (AWC).
During this time, the firm manually reviewed the paperwork, which caused personnel turnover, and as a result, as of February 2020, there was a backlog of about 8,950 unreviewed account statements, Finra said. Some of these account statements dated as far back as June 2018, Finra said, adding that the review of that backlog was not completed until February 2021.
Additionally, Finra alleged that because RBC manually tracked paper statement receipts, it did not have an established system to notify the firm or employees of missing statements and had no follow-up procedure for missing statements. Therefore, in some instances, the firm did not receive paper statements for review. Finra said after the firm identified the backlog of the 8,950 unreviewed statements, it discovered that it had not received about 2,600 statements.
Finra said the supervisory lapses came to light during its 2019 cycle examination of the firm.
In a released statement, RBC said, "RBC Wealth Management fully cooperated with the inquiry, and we are glad the Finra issue is resolved." The firm accepted and consented to the Finra findings without admitting or denying them, according to the AWC.
Finra also cited two other instances where RBC’s paper statement review process was not “reasonably designed.” First, it said, the manual review process did not allow for a review for trading ahead of material changes in research. “The firm’s procedures required review of certain employee trading in a security within three days prior to the issuance of a report on the issuer containing a material change. Although the firm conducted such a review for electronic statements, it failed to conduct the same or a similar review for paper statements subject to manual review,” Finra said.
Also, RBC’s written policies and procedures that certain employees who purchased a security hold that security for at least 30 days before the security could be sold was not followed. Finra said while the firm’s review of electronic statements checked for compliance over adjacent months, the manual review only looked at purchases and sales within the same month, and thus would not identify a violation of the 30-day holding period.