RBC Capital Markets LLC, headquartered in New York, New York, has been censured and fined $75,000.00 by the Financial Industry Regulatory Authority (FINRA) because the firm failed to properly supervise investors’ rights of reinstatement benefits on eligible mutual fund transactions. Letter of Acceptance, Waiver, and Consent No. 2019063914601 (July 2, 2024).
According to the AWC, from January of 2016 to December of 2023, RBC Capital Markets did not ensure that certain customers received mutual fund fee rebates and sales charge waivers they were entitled to by mutual fund companies. FINRA stated that eligible customers collectively paid $264,939.44 in excess sales fees and charges during this period. More than 1,450 accounts were impacted.
Mutual fund issuers often offer rights of reinstatement. These allow investors to repurchase shares of a fund without incurring a front-end sales charge. Investors are also typically able to recoup a contingent deferred sales charge if the repurchase takes place within a certain time frame. However, RBC’s system to ensure the application of these rights did not work.
FINRA stated that RBC’s oversight of reinstatement privileges relied on an automated alert system. Using this system, RBC was supposed to identify transactions where customers sold shares and then bought them again in the same fund family. The regulator stated that until December of 2021, alerts were only made for reinstatement periods of 100 days or less and for transactions exceeding $1,000.00. This was the reason behind 80 percent of trades missing reinstatement benefits.
According to the AWC, when the alert system identified eligible transactions, RBC did not always review them. The securities broker dealer failed to ensure customers received their entitled benefits. Therefore, RBC violated FINRA Rules 3110 and 2010.
