Washington, D.C. – RBC Capital Markets, LLC (RBCCM) has been charged by the U.S. Commodity Futures Trading Commission (CFTC) with failing to adequately supervise its business activities, leading to hundreds of unlawful trades between late 2011 and May 2017. The CFTC issued an order on September 30, 2019, detailing the violations.
The order mandates that RBCCM cease and desist from further violations, pay a $5 million civil monetary penalty, and cooperate fully with the CFTC and other governmental agencies for three years in any future investigations related to the matter. The investigation revealed at least 385 noncompetitive, fictitious exchange for physical wash transactions (Wash EFPs).
According to the CFTC, RBCCM engaged in these Wash EFPs to internally move positions between accounts, a practice deemed less costly and administratively burdensome than alternative risk management strategies. Despite concerns raised by personnel, the appropriate compliance officer failed to respond or provide formal training until at least May 2015. Notably, 217 of these Wash EFPs occurred *after* a 2014 consent order resolved a similar CFTC enforcement action against RBCCM’s parent company, Royal Bank of Canada, for wash sales and fictitious transactions.
The CFTC found that RBCCM had been made aware of the 2014 injunction prohibiting wash trading, yet continued the practice. The agency also determined that RBC delegated futures transaction execution and surveillance to RBCCM, but failed to implement a reasonable supervisory system to oversee those transactions and detect the Wash EFPs.
Further violations included failure to prepare and file Risk Exposure Reports on time, failure to disclose material non-compliance issues to the CFTC, and failure to maintain and promptly produce required records. The CFTC also cited RBCCM’s failure to implement company-wide policies, including a lack of employee compliance manual reviews, inadequate guidance on EFPs within the manual, and a lack of formal training on EFPs. RBCCM disclosed the Wash EFPs to the CFTC shortly before including them in its 2015 Chief Compliance Officer report, but subsequently failed to fully respond to document requests and subpoenas issued by CFTC staff.
“The CFTC will vigorously enforce the rules requiring our registrants to properly supervise their business activities,” stated CFTC Director of Enforcement James McDonald. “Where those supervision failures are accompanied by other violations, we will pursue those violations as well.”
Source: CFTC.gov
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