A sign for the Royal Bank of Canada in Toronto on Dec. 13, 2021.CARLOS OSORIO/Reuters
Royal Bank of Canada RY-T has agreed to pay regulators in the United States and Canada millions of dollars in fines for violating the accounting standards provisions of securities laws in both countries over more than a decade.
The U.S. Securities and Exchange Commission said Thursday that RBC failed to accurately account for the costs of its internally developed software from 2008 through 2020. RBC has agreed to pay a US$6-million penalty to settle the charges, the SEC said.
The Autorité des marchés financiers and the Ontario Securities Commission, regulators in Quebec and Ontario respectively, also announced settlements with RBC on Thursday for the same conduct. RBC has agreed to pay $2-million in Quebec, the AMF said in a statement, and another $2-million in Ontario, according to a settlement agreement that was approved by the OSC’s Capital Markets Tribunal on Friday morning.
“Royal Bank of Canada had long-standing internal accounting control deficiencies that it failed to adequately address,” Nicholas Grippo, the SEC regional director for Philadelphia who was part of the American investigation, said in a press release.
According to the OSC’s statement of allegations, RBC’s annual spending on internally developed software doubled over the course of a decade, rising from $658-million in 2011 to $1.3-billion by 2022. The OSC found the bank had incorrectly recorded some of its software development costs as intangible assets that should have been expensed.
It also found some software-related assets that should have been written off remained on the bank’s balance sheet because RBC lacked an effective process to identify and report impaired assets, such as projects that were cancelled before completion. From at least 2017 through 2020, RBC also lacked sufficient documentation for professional fees paid to third-party contractors, the OSC said.
No evidence of dishonest or abusive conduct on the part of RBC was discovered, the OSC said. The investigation also did not uncover evidence of harm or loss to investors and the regulator noted RBC “has taken corrective actions designed to address the deficiencies and prevent the reoccurrence of similar events in the future.”
RBC said the issues identified by the three regulatory bodies have been addressed and there should be no need to restate any financials.
“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 e-mailed statement. “We hold ourselves to the highest standards when it comes our financial governance and controls to ensure that we meet or exceed our regulators’ expectations and the expectations we have for ourselves.”