U.S. regulators have ordered RBC Capital Markets to pay a fine and restitution for supervisory failures that allowed unsuitable sales in certain complex products.
The U.S. Financial Industry Regulatory Authority (FINRA) said Thursday it has settled an enforcement case against RBC, ordering the firm to pay a fine of US$1 million and approximately US$434,000 in restitution to customers, after it found that RBC failed to have supervisory systems in place to identify transactions for supervisory review when reverse convertible securities were sold to customers. This violated FINRA’s rules as well as the firm’s own suitability guidelines, it notes.
The regulator reports that, as a result, the firm failed to detect 364 reverse convertible transactions in 218 accounts that were unsuitable for those customers. The customers incurred losses of at least US$1.1 million on these trades, it says. RBC has already made payments to numerous customers to settle a class action lawsuit, FINRA says. Now, it has ordered restitution to the remainder of its affected customers.
“Securities firms must ensure that their brokers understand the inherent risks associated with the complex products they are selling, and be able to determine if they are suitable for investors before recommending them to retail customers. When the firm establishes suitability guidelines, it must police the transactions to ensure they appropriately meet their own criteria,” said Brad Bennett, executive vice president and chief of enforcement at FINRA.
Back in 2010, FINRA issued a notice on reverse convertibles, emphasizing the need for firms to perform a suitability analysis in connection with sales of this complex product.
RBC settled the case without admitting or denying the charges; but it consented to the entry of FINRA’s findings.