RBC to Pay Millions in Penalties to Settle Charges in Canada and the US

The RBC logo in Toronto’s financial district in a file photo. (The Canadian Press/Christopher Katsarov)

The Royal Bank of Canada (RBC) is paying millions of dollars in fines to three regulators in two countries for violating accounting standards stretching back more than 10 years.

Canada’s biggest bank is paying $2 million to the Ontario Securities Commission (OSC), $2 million to the Autorité des marchés financiers (AMF) in Quebec, and $6 million to the U.S. Securities and Exchange Commission (SEC).

A joint investigation carried out by the AMF and the OSC found that the bank had failed to properly disclose the costs associated with internally developed software projects from 2008 through 2020. A parallel investigation by the SEC discovered the same conduct.

A settlement agreement reached between the Canadian regulators and RBC was approved after a public hearing via video conference before the Capital Markets Tribunal Nov. 3.

“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 OSC director of enforcement Jeff Kehoe in a Nov. 2 statement.

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

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RBC’s spending on internally developed software doubled over a 10-year period, growing from $658 million in 2011 to $1.3 billion by 2022, the OSC said in its statement of allegations. The regulator found that RBC had inaccurately entered some of its software development costs as “intangible assets” rather than being recorded as expenses.

The OSC also found some software-related items that the bank should have written off remaining on its balance sheet because RBC did not have an “effective” way to assess and report “impaired assets.” The statement of allegations noted that RBC also lacked an “effective system to track and document” contracts for professional fees paid to third-party contractors from at least 2017 through 2020.

The SEC had identical findings.

“Royal Bank of Canada had longstanding internal accounting control deficiencies that it failed to adequately address,” said SEC regional director for Philadelphia Nicholas Grippo in a statement. “Properly functioning internal accounting controls are a front-line defense and help ensure accurate financial disclosures—the backbone of our capital markets.”

The regulators’ investigations did not turn up any evidence of “dishonest or abusive conduct,” the OSC said, adding that there was also no evidence that investors had suffered any losses as a result. The regulator said RBC has since taken action to address its “deficiencies” in a bid to prevent a repeat occurrence.

RBC has neither admitted nor denied the accuracy of the charges outlined in any of the agreements reached with the three regulators.

“While it was not large enough to be material to our financial statements, we thoroughly investigated and took action to remediate our processes,” RBC spokesperson Gillian McArdle said in an emailed statement.

“We hold ourselves to the highest standards when it comes [to] our financial governance and controls to ensure that we meet or exceed our regulators’ expectations and the expectations we have for ourselves.”