RBC Ordered to Pay $1.1 Million Over Supervision Failures

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Decreeing that RBC Capital Markets failed to supervise registered representatives' unsuitable recommendations of short-term stock trading to customers, FINRA censured and fined RBC $300,000, ordering the firm to pay more than $780,000 in restitution and disgorgement to affected customers, for a total penalty of nearly $1.1 million for RBC's various violations. This is just RBC's latest censure and fine, as FINRA and the SEC have sanctioned RBC to the tune of approximately $5 million over the past few years for various infractions.

In an AWC, investigators wrote that RBC Capital Markets allowed representatives to recommend customers purchase syndicate preferred stock—a product generally purchased for income features and held long-term—but for a short-term holding period, generating excess sales commissions for RBC and its brokers due to a purportedly unsuitable investment strategy.

FINRA has previously cautioned firms about the danger of short-term syndicate preferred stock trading due to its potential for abuse through excessive trading, whereby repeated short-term buying and selling of this stock results in brokers or investment advisers receiving excessive front-end sales commissions or other concessions at the client's expense.

In sanctioning RBC for its supervisory failures, FINRA wrote that RBC failed to establish and maintain an adequate supervisory system whatsoever, failing to satisfy the industry rule requiring firms to have a reasonable basis to believe a recommended transaction is suitable for the customer, also known as the suitability rule.

Furthermore, RBC Capital Markets and RBC Wealth Management's systems purportedly failed to detect short-term trading in preferred stock and, thus, failed to detect the high volume of trades occurring in a short amount of time, resulting in significant customer losses.

The approximate $780,000 penalty of restitution and disgorgement represents both money that RBC earned in selling concessions from the short-term syndicate purchases and sales commissions pocketed as a result of the subsequent transactions effected at the detriment to RBC customers.

This is not the first time regulators penalized RBC Capital Markets for supervisory and suitability failures. Since 2020, RBC paid nearly $5 million through orders and settlements over allegations of supervisory failures pertaining to high-yield corporate and municipal bonds and unsuitable share class recommendations.

If you invested with RBC Capital Markets or with any broker, investment adviser, or brokerage firm whose unsuitable recommendations, such as excessive short-term trading or transactions have proven harmful to your investments or interests through losses or the incurrence of excessive sales charges, commissions, or fees, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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