The Financial Industry Regulatory Authority fined RBC Capital Markets $2.9 million on Oct. 16 for the way it handled exchange-traded fund, exchange-traded note and mutual fund sales for clients.
The case dated back to September 2007, when RBC Dain — a brand that was later phased out — was fined $500,000.
From July 2003 to October 2004, the broker-dealer failed to ensure the delivery of prospectuses in connection with the sale of certain registered securities, deliver product descriptions to clients that bought ETFs and failed to maintain reasonable supervisory systems and procedures related to the delivery of product descriptions and prospectuses, FINRA said in its decision.
In 2007, without admitting or denying any allegations or findings, RBC Dain agreed to a $500,000 fine, a penalty of a censure and to provide the New York Stock Exchange with a written certification stating that its policies and procedures were reasonably designed to achieve compliance with the federal securities laws and NYSE rules applicable to the delivery of prospectuses and product descriptions.
While RBC Dain provided the required certification in December 2007, the firm failed to make the required delivery of prospectuses to clients who bought about 165,000 ETFs and ETNs and “at least hundreds of thousands of mutual funds” from March 2008 to June 2016, the regulatory group explained.
RBC also “failed to design, implement, and enforce a reasonable supervisory system, procedures, and set of controls to comply with prospectus delivery rules for ETFs, ETNs and mutual funds and as a result, failed to discover the delivery failures until FINRA’s investigation into the matter,” the regulatory group said.
Details of Problems
During that eight-year stretch, RBC’s prospectus delivery process for ETFs and ETNs “involved manually inputting coding for individual securities into third-party software to trigger the delivery” of a prospectus when a customer bought the security, according to FINRA.
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.