RBC settles internal controls case with SEC, OSC, AMF

By James Langton | November 2, 2023 | Last updated on November 3, 2023
2 min read
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Royal Bank of Canada (RBC) is paying US$6 million in a series of settlements with regulators in Canada and the U.S. over alleged accounting issues.

The U.S. Securities and Exchange Commission (SEC) announced a settlement with RBC that will see the bank pay US$6 million to resolve allegations that it violated certain provisions of securities rules in connection with its accounting for internally developed software.

According to the SEC’s order, from 2008 through 2020, RBC’s spending on software development ramped up, but the “development of its control environment did not keep pace, and internal accounting control deficiencies affected [the bank’s] cost capitalization accounting for [internal software] projects.”

As a result, the regulator found that the bank violated the internal controls and books and records provisions of U.S. securities laws.

The bank agreed to settle the allegations without admitting to or denying the SEC’s findings.

In settling the charges, RBC agreed to cease and desist from committing future violations and to pay a penalty to the SEC that will be partially offset by payments to the Ontario Securities Commission (OSC) and the Autorité des marchés financiers (AMF) over the same conduct.

Under separate settlements with the OSC and the AMF, the bank agreed to pay $2 million to each regulator to resolve the allegations in Ontario and Quebec.

“For an extended time, RBC recorded the costs of its internally developed software projects in a manner that was inconsistent with applicable accounting standards and contrary to Ontario securities law,” said Jeff Kehoe, director of enforcement with the OSC, in a release.

“The books and records requirements are a critical component of our compliance and enforcement work, and long-standing failures such as these undermine investor confidence in Ontario’s capital markets,” he said.

The AMF noted that RBC neither admits nor denies the allegations in the agreements with the Canadian regulators. The OSC said it found no evidence of dishonest or abusive conduct by RBC, investors weren’t harmed, and the accounting issues didn’t materially impact the bank’s financial statements.

It also noted the bank has “taken corrective actions designed to address the deficiencies and prevent the re-occurrence of similar events in the future.”

“Royal Bank of Canada had long-standing internal accounting control deficiencies that it failed to adequately address,” said Nicholas Grippo, director of the SEC’s Philadelphia office, in a release.

“Properly functioning internal accounting controls are a front-line defence and help ensure accurate financial disclosures — the backbone of our capital markets,” he said.

In a statement on Thursday, RBC said it was pleased to have resolved the matter.

“While it was not material to our financial statements, we thoroughly investigated and took action to remediate our processes,” the statement said. “We hold ourselves to the highest standards when it comes our financial governance and controls to ensure that we meet or exceed our regulators’ expectations and the expectations we have for ourselves.”

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.