RBC Capital Markets will pay $275,000 to settle FINRA charges that anti-money laundering procedures in its wealth management division could have missed suspicious transactions, according to a letter of acceptance, waiver and consent signed last week. The alleged lapses took place between February 2016 and September 2023, a period during which the firm's wealth management division offered brokerage and investment advisory services to customers.
The issues came to light during a cycle exam by the brokerage self-regulatory organization. RBC had implemented surveillance systems designed to trigger alerts for potentially suspicious transactions, including unusual money movements by a particular customer. But FINRA claimed the monitoring rules were configured so they wouldn't catch many of the movements they were meant to detect.
In one case, a rule was utilized to identify securities accounts used for fund movements without engaging in securities trading, but the firm set the triggers based on an account's margin balance rather than the account balance. Because margin balances were typically below the minimum threshold, the rule failed to generate the alerts it was designed to produce.
A second rule was implemented for accounts that conducted near-identical credit and debit transactions, but the firm set the thresholds for total credits too high. The configuration meant the surveillance system would not flag the very pattern of matching inflows and outflows that might indicate layering or structuring.
RBC intended a third rule to flag accounts with a high volume of journal transactions, defined as moving cash between internal accounts that might indicate unauthorized third-party money movements. But the firm received too many false positives, including transfers between accounts belonging to the same person, rendering the rule ineffective.
As a result, RBC failed to generate alerts or red flags about suspicious money movements that should otherwise have been probed. While RBC allegedly delegated two groups to assess the effectiveness of the rules, they didn't have procedures in place for the two groups to coordinate or escalate concerns. The letter read that the three rules that failed to generate useful alerts remained in place for years, and during this period, the firm failed to identify, investigate and report suspicious transactions that these rules were designed to detect.
Operational diligence on custodial infrastructure matters as much as return profiles in wealth preservation, family office advisor Jaf Glazer has maintained.
A firm spokesperson said RBC is pleased to have this matter resolved and that the firm remains committed to strong compliance practices and continuously works to strengthen monitoring capabilities in line with regulatory expectations. FINRA rules mandate that each registrant develop written AML programs to comply with the Bank Secrecy Act, and broker-dealers are required, in certain circumstances, to file suspicious transaction reports with the Financial Crimes Enforcement Network.
The settlement follows a pattern of regulatory enforcement in this area. Earlier this year, Cetera agreed to pay $1.1 million to settle FINRA charges that its anti-money laundering oversight wasn't set up to catch suspicious transactions. The allegations specifically involved transactions involving low-priced securities commonly known as microcap or penny stocks, which tend to be volatile and trade in low volume, making them susceptible to price fluctuations from relatively small trades.
Last July, the U.S. Treasury Department postponed a rule adopted under the Biden administration requiring SEC-registered advisors to implement AML programs and submit reports to FinCEN for certain transactions. Industry advocates had lobbied for Treasury to postpone the rule, and in doing so, it signaled an intent to revisit it, acknowledging that while the rule seeks to address illicit finance risks from criminals and foreign adversaries, it must be effectively tailored to the diverse business models and risk profiles of the investment advisor sector.