RBC Capital Markets, LLC has agreed to pay a fine of $275,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From February 2016 through September 2023, RBC failed to establish and implement policies and procedures reasonably expected to detect and cause the reporting of suspicious transactions.

During the relevant period, RBC’s Wealth Management division provided full-service brokerage and investment advisory services to wealth management customers of the firm.

The firm implemented a surveillance system based on transaction monitoring rules which, when triggered, indicated that a customer account may be engaging in suspicious transactions, including money movements that would not be expected of a wealth management customer, or which posed a higher risk of money laundering. Using an automated process, the system generated an alert for each customer when the parameters and thresholds of a particular rule were triggered.

In February 2016, the firm introduced three new transaction monitoring rules that were intended to identify red flags of suspicious money movements. However, the firm configured the parameters and thresholds of these monitoring rules in a manner that did not capture many of the types of transactions the rules were intended to detect.

One monitoring rule was intended to identify customer securities accounts used for incoming and outgoing movements of funds without conducting any securities trading, but the firm configured the rule to trigger alerts based on an account’s margin balance—which was typically less than the minimum threshold balance—instead of the account balance.

The second monitoring rule was intended to identify customer accounts that conducted almost identical credit and debit transactions, but the rule failed to trigger useful alerts because the thresholds for total credits were set too high.

The third monitoring rule was intended to identify customer accounts that had a high volume of “journal” transactions, i.e., transfers of cash between internal accounts that might indicate unauthorized third-party money movement activity, but the rule generated a high volume of false positives because it captured routine transfers between accounts belonging to the same person or related parties.

Because the firm improperly configured the parameters and thresholds of these monitoring rules, they either failed to generate useful alerts or otherwise did not identify red flags of suspicious money movements that the firm should have investigated.

Although the firm’s policies and procedures required it to modify, replace, or retire ineffective transaction monitoring rules, in practice the firm failed to effectively review the monitoring rules to determine whether the rules were identifying suspicious money movements in customer accounts so as to enable the firm to investigate and report the suspicious transactions.

During the relevant period, the firm delegated to two different groups responsibilities for assessing the effectiveness of the transaction monitoring rules and for decommissioning ineffective rules, but the firm did not have procedures for the two groups to coordinate or escalate concerns.

Consequently, the three rules that failed to generate useful alerts remained in place for years and during this period, the firm failed to identify, investigate, and report suspicious transactions that these rules were designed to detect.

By failing to develop and implement a reasonably designed AML program from February 2016 to September 2023, RBC violated FINRA Rules 3310(a), 3310(f)(ii) and 2010.

The firm has agreed to a censure in addition to the $275,000 fine.