The Royal Bank of Canada (RBC) and the Toronto Dominion Bank (TD) have agreed to pay the Ontario Securities Commission (OSC) over CAD $24 million for their failure to properly supervise their respective Foreign Exchange (FX) traders who exchanged confidential client information via online chatrooms.
In the course of their investigation, OSC Staff discovered hundreds of instances between 2011 and 2013 where RBC and TD FX traders disclosed confidential transaction details, such as trade sizes, timing, price, or stop-loss levels. In the view of the regulator, this information allowed the traders to gain a potentially unfair advantage in the market. Moreover, the regulator found that the FX supervisors at both banks permitted the continued exchange of confidential client information, with neither imposing a chatroom ban until 2013. Even with the ban in place, the OSC found it was not effectively enforced until 2015 because of the inadequate internal controls at both banks at the time.
The OSC was careful to point out that there was no allegations of, or any evidence of an attempt to manipulate FX benchmark rates.
For its part, RBC agreed to voluntarily pay $13.552 million to the OSC, plus a further $800,000 to cover the costs of the investigation. Meanwhile, TD has agreed to make a voluntary payment of $9.3 million to the regulator, with an additional $800,000 towards the investigation. The OSC notes that the voluntary settlement amounts reflect both banks’ cooperation with staff during the investigation. Both banks have also agreed to audit the compliance frameworks of their respective FX businesses.
The regulator is now turning an eye towards Ontario’s derivatives dealers to assess whether they have sufficient controls in place to manage the risks faced by their FX trading businesses. OSC staff note that they will review their findings, and coordinate with other Canadian regulators as appropriate.
The settlement agreements with both RBC and TD are available from the website of the Ontario Securities Commission.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.