A unit of Royal Bank of Canada (RBC) is paying US$5 million to settle allegations with U.S. derivatives regulators that supervisory shortcomings at the firm enabled illegal trades.
The U.S. Commodity Futures Trading Commission (CFTC) settled with RBC Capital Markets LLC, which will pay a US$5 million penalty and agree to cease future violations of the CFTC’s rules.
The regulator said the firm failed to meet its supervisory obligations, “which resulted in hundreds of unlawful trades and other violations” from late 2011 through May 2017.
In particular, the CFTC’s order found the firm engaged in “at least 385 noncompetitive, fictitious, exchange-for-physical-wash transactions” in an effort to cost-effectively move positions between its internal accounts.
The CFTC says that the firm’s traders believed that the exchange allowed these transactions, and they sought guidance from a compliance officer to ensure that the trades were appropriate, “but the officer did not respond, follow up with the exchange, or provide any formal training until at least May 2015.”
The regulator’s order also detailed other supervisory lapses, and noted that the firm failed to file timely reports, to disclose material non-compliance issues to the CFTC, and to maintain and promptly produce required records to the CFTC.
“The order finds that the CFTC expended considerable resources trying to obtain information and timely compliance with its subpoenas from RBC and RBC [Capital Markets],” it said.