FINRA fines RBC Capital Markets for alleged rule violations

RBC Capital Markets, LLC has agreed to pay a fine of $75,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From January 2016 to at least December 2023, RBC’s system that provided customers with rights of reinstatement benefits on eligible transactions was not reasonably designed in several respects. The firm’s oversight of discounts available through rights of reinstatement relied on automated alert that was set to identify transactions in which a customer liquidates a position in a fund family and then purchases back into the same family at a later date.

Through at least December 2021, the alert parameters were set so that the alert would only trigger when the principal of the transaction was more than $1,000. The parameters were also set so the alert would trigger only when a right of reinstatement window was for 100 days or less. Thus, the alert was not designed to, and did not, capture all transactions eligible for reinstatement privileges.

For example, approximately 80% of trades missing a right of reinstatement benefit between January 2016 and December 2021 were trades where the alert did not trigger because the transaction was for less than $1,000 in principal, or involved a right of reinstatement entitlement window, greater than 100 days. The firm also, at times, failed to reasonably review alerts that did trigger to ensure that eligible customers were credited with reinstatement privileges.

As a result of its supervisory deficiencies, RBC did not provide over 1,450 accounts with rights of reinstatement benefits to which they were entitled, and customers paid $264,939.44 in excess sales charges and fees.

Therefore, RBC violated FINRA Rules 3110 and 2010.

The respondent also consents to the imposition of a censure and a $75,000 fine.