FINRA Sanctions RBC Capital Markets for Unsuitable Short-term trading
According to public documents this week, the Financial Industry Regulatory Authority (FINRA), the self-regulator that oversees brokers and brokerage firms, has censured and fined RBC Capital Markets LLC $300,000 for supervisory issues. The firm will also reportedly be required to pay restitution of $128,643.17 plus interest and disgorgement of $653,312.83 plus interest.
From January 2017 to December 2018, RBC failed to establish and maintain a reasonable supervisory system to monitor whether its registered representatives recommended to retail customers short-term trading of syndicate preferred stocks that was unsuitable, including for the purpose of capturing sales concessions and commissions.
While the firm’s procedures called for supervisors to closely examine representatives’ short-term trading of preferred stocks, the firm’s electronic surveillance of short-term trading in preferred stock was unreasonably designed, and it failed to monitor for that activity.
Representatives allegedly recommended a number of the firm’s retail customers purchase syndicate preferred stocks, and then sell the positions within 180 days, and the customers sustained losses on these transactions. Based on the above conduct, RBC violated FINRA Rules 3110 and 2010.
Failure to Supervise
FINRA Rule 3110 (Failure to Supervise) requires a firm to establish and maintain a system to supervise the activities of its associated persons that is reasonably designed to achieve compliance with the applicable securities laws and regulations and FINRA rules.
Firms are responsible for ensuring that their associated persons comply with applicable securities laws and regulations, as well as FINRA rules, and must take reasonable steps to prevent violations from occurring.
If a firm fails to supervise adequately, it may be subject to disciplinary action by FINRA, including fines, censures, and suspension or revocation of its membership. In addition, the individuals responsible for supervisory failures may also face disciplinary action, including fines, suspensions, and bars from the industry.
FINRA Rule 2010
FINRA Rule 2010 is a broad ethical principle that requires all FINRA member firms and their associated persons to observe high standards of commercial honor and just and equitable principles of trade. It is known as the “Standards of Commercial Honor and Principles of Trade” rule.
The rule is designed to promote ethical conduct and fair dealing in the securities industry. It covers a wide range of activities, including the solicitation, sale, and execution of securities transactions, as well as the handling of customer accounts and the dissemination of investment recommendations.
RBC Capital Markets – Regulatory History
In December 2021, RBC was censured, fined $550,000 and ordered to pay $456,155, plus interest, in restitution. RBC failed to establish, maintain, and enforce a supervisory system, including written procedures, reasonably designed to achieve compliance with FINRA and Municipal Securities Rulemaking Board rules with respect to representatives’ recommendations of high-yield corporate and municipal bonds. RBC therefore violated NASD Rule 3010, FINRA Rule 3110, and MSRB Rule G-27.
In December 2020, RBC was censured and ordered to pay $685,520, plus interest, in restitution. RBC failed to establish and maintain a supervisory system reasonably designed to supervise representatives’ recommendations to customers to purchase particular share classes of 529 savings plans in violation of MSRB Rule G-27.
In April 2020, according to an Offer of Settlement with the Securities and Exchange Commission, RBC Capital Markets was censured and ordered to pay disgorgement of $2,607,676, plus interest, and a civil penalty of $650,000. RBC consented to findings that it disadvantaged certain brokerage customers by failing to ascertain they were eligible for a less expensive share class and recommending and selling them more expensive share classes in mutual funds when less expensive share classes were available, and that it did not disclose that the more expensive share classes would result in greater compensation for RBC while negatively impacting the overall return on the customers’ investments. RBC thus violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.
Free Consultation with a Securities Fraud Attorney
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. The firm represents investors throughout the country in claims against their brokerage firm.
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Tags: failure to supervise, FINRA Rule 3110, finra sanctions, RBC Capital Markets, suitability Last modified: April 17, 2023