RBC unit to cover nearly $3 million of investor ETF losses
BOSTON (Reuters) - Royal Bank of Canada's (RY.TO: Quote) brokerage unit agreed to repay investors in Massachusetts up to $2.9 million to cover losses on leveraged and inverse leveraged exchange-traded funds, the latest phase of a nationwide regulatory crackdown on the sometimes volatile products.
The bank's RBC Capital Markets division was also fined $250,000 by Massachusetts' top securities regulator, William Galvin, for selling the "highly volatile, nontraditional" funds that did not fit with some clients' investment objectives, Galvin said in a statement on Wednesday.
"This settlement details an inexcusable set of facts where the company was selling products it did not understand, and when it finally realized the risk and pitfalls of these investments it did not immediately restrict their marketing," Galvin said.
RBC said it "takes seriously" its obligations to clients. "We fully cooperated throughout this matter and have in place extensive policies, procedures and training requirements that are in compliance with regulatory requirements and with industry best practices in this arena," the bank said in an emailed statement.
Leveraged and inverse ETFs are designed to amplify short-term market returns on a day-to-day basis using derivatives. Because of the volatile nature, they are considered more suitable for professional traders than for long-term retail investors or those with anything but a high-risk investment profile.
Such ETFs make up under $30 billion of the $1.2 trillion U.S. ETF market, according to Lipper, the fund tracking unit of Thomson Reuters.
In 2009, the Financial Industry Regulatory Authority and other regulators began issuing warnings about such investments over fears that brokers were selling them to customers with more conservative investment profiles.
On Tuesday, Citigroup Inc (C.N: Quote) Morgan Stanley (MS.N: Quote), UBS AG UBSN.VX and Wells Fargo & Co (WFC.N: Quote) agreed to pay more than $9.1 million in fines and restitution for selling leveraged and inverse exchange-traded funds "without reasonable supervision," according to a FINRA statement.
The RBC settlement resolved an administrative complaint Galvin filed against RBC Capital last year.
(Reporting By Aaron Pressman; Editing by Gerald E. McCormick)
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