FINRA Slaps RBC With $2.9M Fine

Over that time period, clients bought more than 5 million ETFs and ETNs from RBC, which relied on just one employee, who manually assigned the codes to ETFs and ETNs on a security-by-security basis; no supervisory systems or controls were in place to monitor or supervise the employee's performance of those duties, FINRA said.

As a result, RBC failed to detect that one employee had "inadvertently caused the system to overwrite the trailer codes that triggered prospectus delivery and failed to identify new ETFs and ETNs requiring a trailer code," according to FINRA.

After discovering the extent of the coding errors in June 2015, RBC's efforts to address the issues weren't effective, while its supervisory system related to prospectus delivery for mutual funds also was "not reasonably designed," FINRA said.

In March 2008, RBC merged with an affiliate and started using a new automated vendor system to identify mutual fund purchases requiring prospectus delivery. But during that same eight-year period, the vendor system didn't correctly designate for prospectus delivery certain customer mutual fund orders placed via RBC's managed accounts platform, FINRA said.

RBC's supervisory system included a written procedure obligating the firm to designate an employee to conduct periodic supervisory reviews to determine if securities products were properly coded for prospectus delivery, FINRA noted.

When it came to mutual funds, RBC "failed to assign these supervisory duties, thereby failing to enforce this procedure, and thus these duties were not performed for more than eight years," FINRA noted, adding: "As a result, the absence of appropriate coding for at least hundreds of thousands of mutual fund purchases was not discovered until FINRA's investigation in this matter."

RBC also "failed to establish, maintain or enforce supervisory controls to test and verify that it was delivering ETF, ETN and mutual fund prospectuses where required," according to the document.

As part of the recent settlement, FINRA also required RBC to certify within 120 days that it established and implemented a supervisory system and written procedures reasonably designed to achieve compliance with FINRA rules and the federal securities laws applicable to prospectus delivery.

In settling the matter, RBC neither admitted nor denied the charges but consented to the entry of FINRA's findings.

As of Sept. 30, RBC Wealth Management had $384 billion in total client assets with more than 1,900 financial advisors operating in 170 locations in 42 states.