Royal Bank’s credit ratings aren’t affected by the wash trading allegations levied against it this week by the U.S. Commodity Futures Trading Commission, says Fitch Ratings.
The rating agency said on Thursday that the allegations, which the bank strongly denies, have no impact on RBC’s credit ratings.
“Given the reported size of the trades under review by the CFTC, we expect any potential fine or other charge, if levied, would likely be manageable relative to RBC’s financial resources and current capital position,” it says. “An outsized fine, permanent reputational damage, and/or material business restrictions could affect the ratings, although these outcomes are not expected at this time.”
Fitch notes that RBC has stated that it does not expect the CFTC case to be a financially material event. Potential reputation damage could have more of an impact, it suggests.
The CFTC filed a complaint earlier this week in federal district court alleging that RBC conducted a wash sale scheme, involving several hundred million dollars in trading of futures contracts on OneChicago, LLC, an electronic futures exchange. It claims that the trades were not completed at arm’s length, as required, and were designed to garner tax benefits for the bank.
The allegations have not been proven, and RBC has denied them. Fitch says that RBC has indicated that it sought guidance on its trading activity from the regulator in 2005 and received no objection from the exchange.
Nevertheless, Fitch says the case may indicate increasing regulatory vigilance. “At this stage, the CFTC’s charges are centered on RBC, but this event highlights the potential for increased rigor and conservatism from the CFTC and other regulators,” it adds.