A trio of Royal Bank of Canada (RBC) firms are paying $21.8 million in compensation to clients and almost $1 million to regulators to settle allegations that they overcharged clients in certain mutual funds and fee-based accounts.
An Ontario Securities Commission (OSC) hearing panel of the approved a no-contest settlement with RBC Dominion Securities Inc., Royal Mutual Funds Inc. and RBC Phillips, Hager & North Investment Counsel Inc. on Tuesday, which sees the firms compensating clients who were allegedly overcharged by the firms. The three RBC companies also agreed to make a voluntary payment of $925,000 (along with $50,000 in costs) to the OSC and to take measures to enhance compliance and ensure that similar overcharging doesn’t occur in the future.
The alleged overcharging involved clients with fee-based accounts who held products in those accounts but who also paid embedded trailer fees; and clients who were not told that they qualified for cheaper versions of certain mutual funds.
RBC self-reported the issue to the OSC in February 2015. The no-contest settlement approved on Tuesday sees the RBC firms neither admit nor deny the allegations that they failed to have controls in place to prevent overcharging clients, or to detect these issues.
In approving the settlement, the OSC hearing panel notes that the firms self-reported the violations to the OSC; that the firms co-operated with the regulator; and that no evidence of dishonest conduct was found.
The no-contest settlement also notes that the RBC firms will be paying $21.8 million in compensation to the affected clients and taking corrective action.
“When compliance inadequacies occur, and they do from time to time, it is critical that the registrant responds in the responsible way that the RBC registrants have,” the OSC hearing panel notes in its reasons. “This settlement should make it clear that registered firms must have in place robust and effective compliance systems, a principal purpose of which is to provide reasonable assurance that investors are protected and that they are treated fairly.”
With this latest agreement, the OSC has now reached no-contest settlements with all of the big banks, along with several other firms, generating approximately $342 million in aggregate compensation to investors. The program was launched several years ago to enhance enforcement by encouraging faster settlements in cases that meet certain conditions, allowing firms to resolve enforcement actions without admitting fault.
“Our no-contest settlement program continues to deliver results,” says Jeff Kehoe, director of enforcement at the OSC, in a statement. “More than $340 million has been returned to investors since the inception of the no-contest settlement program, and we will continue to use this strong enforcement tool in appropriate cases that meet our strict criteria.”
Notably, firms associated with Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Bank of Montreal reached multimillion no-contest settlements with the OSC in 2016 in connection with overcharging clients.
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