Almost 1,500 investors missed out on over $1 million in federal grants, after Royal Mutual Funds Inc. failed to request them, according to a settlement with regulators.
A hearing panel of the Canadian Investment Regulatory Organization (CIRO) accepted a settlement with the fund dealer, which admitted that it didn’t have adequate controls in place, between October 2001 and May 2021, to ensure that requests for Canada Education Savings Grant (CESG) payments were made on behalf of eligible investors.
According to the settlement, the issue was uncovered when Employment and Social Development Canada (ESDC) — the federal agency that administers the CESG program — conducted a review of accounts that had made contributions but hadn’t requested the matching government grants.
In 2021, the agency alerted the firm to 16 such instances. The firm reviewed all of the RESP accounts it had opened since 1998, and found 1,475 eligible accounts for which grants had not been requested. Payments to those accounts would have added up to about $1.05 million.
“The failure to process the applications for the CESG payments generally arose because [the firm’s] back-office operational process did not contain a system or procedure to validate whether RESP accounts were incorrectly marked as not applying for the CESG or whether there were changes to a client’s CESG application status,” the settlement said.
The firm has since fixed its controls, and it has also paid over $1.0 million in compensation to the affected accounts — including $750,000 for missed grants that could no longer be paid, and almost $300,000 in compensation for lost growth.
Additionally, the government paid almost $300,000 in grants to accounts that were still eligible for them.
In total, the affected accounts recovered $1.34 million, the settlement noted.
The firm also agreed to a fine of $125,000 and to pay $10,000 in costs to resolve CIRO’s case against it for violating fund dealer rules.