FINRA fines RBC Capital Markets for deficient oversight of employees’ outside accounts
RBC Capital Markets LLC has agreed to pay a fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
RBC’s written supervisory procedures required employees to disclose their personal brokerage accounts to the firm. The majority of employee accounts were held at RBC or with certain outside broker-dealers for which the firm received electronic feeds of account statements that were then subject to an automated review process.
In other instances, however, the firm received paper statements, which were manually reviewed for compliance with the firm’s pre-clearance, holding period, and watch and restricted list policies. For paper statements, the firm’s process included four steps: (1) tracking receipt of paper statements; (2) reconciling accounts for missing statements; (3) reviewing the paper statements; and (4) escalating issues for review.
During the period June 2018 through February 2020, the firm failed to have in place a supervisory system, including written supervisory procedures, reasonably designed to timely review paper statements from employees’ outside accounts.
For example, the firm had no prescribed timeframe to track, reconcile, and review statements. As a result, and due to the manual nature of the paper statement review process, personnel turnover; and outdated technology systems, as of February 2020, the firm had a backlog of approximately 8,950 unreviewed account statements, with some dating as far back as June 2018. The firm’s review of that backlog was not completed until February 2021.
In addition, the firm manually tracked receipt of paper statements, had no system in place to notify the firm or employees that statements were missing, and had no procedure for following up on missing statements. As a result, in some instances, the firm did not receive paper statements for review.
The firm’s process to review paper statements was also not reasonably designed in two respects.
First, the manual review process did not include a review for trading ahead of material changes in research. Second, the firm’s written policies and procedures required that certain employees who purchased a security hold that security for at least 30 days before the security could be sold. The firm’s procedures required review for violations of this holding period policy.
Although the firm’s review of electronic statements checked for compliance over adjacent months, the paper statement review consisted only of looking at purchases and sales that occurred within the same month. Accordingly, the manual review process would not identify a violation of the holding period when there was a purchase in one month and a corresponding sale within the 30-day holding period in the following month.
Therefore RBC violated FINRA Rules 3110 and 2010.
To settle the matter, RBC has agreed to a censure and a fine of $360,000.