RBC battles former executive after dropping Volcker strategy

Thu Feb 23, 2017 4:39pm EST
 
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By Olivia Oran and Nate Raymond

(Reuters) - Royal Bank of Canada (RY.TO: Quote) is in a court battle with a former executive it dismissed after moving him to the Bahamas where it could continue a lucrative trading business hindered by U.S. regulations.

The dispute, according to court documents, centers on whether the former executive, Tebogo Phiri, has the right to valuable intellectual property such as data and trading strategies underpinning the business he ran for RBC. But it also reveals ongoing fallout from a controversial financial reform measure known as the Volcker rule banning proprietary trading, which banks have tried to fight in sundry ways.

Phiri first filed a lawsuit in New York State court in December against RBC's U.S. investment banking division, saying his former employer had agreed in writing to let him take certain intellectual property if the business did not survive offshore. The information and trading strategies involved generate tens of millions of dollars in annual revenue, according to court filings.

Phiri's group engaged in proprietary trading, in which a bank's own capital is used to place speculative market bets. That type of trading was largely banned by the Volcker rule, which was part of a broad set of U.S. financial reforms after the 2008 crisis.

Lawyers for RBC and Phiri did not respond to requests for comment. A spokeswoman for RBC declined to comment. Phiri could not be reached for comment.

According to Phiri, RBC came up with a plan in 2015 to move him and other traders offshore because of the Volcker rule. An exception to the rule allows non-U.S. banks to engage in proprietary trading activity as long as the trading is conducted outside the United States.

But by mid-2016, the bank changed course and decided to shut down the Bahamas operation. RBC terminated Phiri's employment in October, but did not grant him the intellectual property rights he was expecting, according to court papers.

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A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of the financial district in Toronto, January 22, 2015. REUTERS/Mark Blinch/File Photo