The Financial Industry Regulatory Authority has penalized RBC Wealth Management-U.S. over failures in its supervisory system, according to Advisor Hub.
RBC agreed to pay nearly $1.1 million to settle FINRA’s finding that the firm failed to properly monitor unsuitable short-term trading of preferred stocks by about 40 of its registered representatives.
FINRA said that from January 2017 to December 2018, the brokers engaged in trading that generated unnecessary commissions for themselves but often caused losses for their customers. According to the settlement, RBC’s electronic surveillance of short-term trading in preferred stock was unreasonably designed and failed to monitor the activity as required.
In particular, FINRA said the system did not have alerts that specifically monitored for such trading and more general alerts did not flag the short-term trading. The authority’s rules require firms to have a reasonably designed supervisory system.
“Trading in syndicate preferred stock is subject to potential abuse where representatives make recommendations to customers to purchase the security, collect the sales concession, and then recommend a short-term sale of the security,” said FINRA. “This practice is particularly questionable if the representative than solicits the customer to purchase a different syndicate preferred stock, again receiving a front-end sales commission.”
RBC did not admit or deny the findings, but agreed 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.
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