The U.S. Office of the Comptroller of the Currency has imposed a US$65-million fine on Royal Bank of Canada subsidiary City National Bank.Lucy Nicholson/Reuters
Royal Bank of Canada’s RY-T U.S.-based subsidiary City National Bank has been ordered to implement a sweeping array of reforms after a top U.S. banking regulator found failings in many of its internal controls and risk-management processes.
The U.S. Office of the Comptroller of the Currency (OCC) announced late Wednesday that it has imposed a US$65-million fine on City National.
Canadian and U.S. regulators have been bolstering their enforcement measures over anti-money-laundering gaps.
Los Angeles-based City National – which was acquired by RBC in 2015 and is known as the bank to the stars because of its Hollywood clientele – was also ordered to implement a series of internal reforms. It must develop new or updated policies in areas such as third-party risk management, enterprise-change management, internal-controls testing, regulatory-issues management, operational-risk-event reporting, fraud-risk management and payments-systems operations.
While the OCC did not outline specific instances of wrongdoing in its agreement with the bank, it said that City National engaged in unsafe or unsound practices, including failure to establish effective risk management and internal controls.
“Our focus will continue to be on both strengthening our infrastructure and systems to reflect a bank of our size and business model, while at the same time providing our clients with consistently outstanding banking products and services,” City National Bank spokesperson Diana Rodriguez said in an e-mail statement.
City National and RBC have also drawn the ire of other regulators. Early last year, the U.S. Department of Justice imposed a US$31-million fine on City National for redlining – the term that refers to discrimination by not providing mortgages and loans for predominately Black and Latino communities.
In December, Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) levied its largest fine, requiring RBC to pay a $7.5-million penalty after the regulator found that the bank had committed three violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
RBC’s Canadian rivals have also been on the radar of regulators. In December, FinTRAC fined Canadian Imperial Bank of Commerce more than $1.3-million for failing to flag transactions linked to money laundering and terrorist financing.
In January, The Globe and Mail reported that FinTRAC is preparing to impose a significant monetary penalty on Toronto-Dominion Bank TD-T after an examination found that the lender had faulty anti-money-laundering controls, according to sources familiar with the matter. The Globe is not identifying the sources because they were not authorized to speak to the media about regulatory issues.
Canada’s second-largest lender also expects monetary and non-monetary penalties from U.S. regulators and law enforcement, including the Department of Justice.
To help address these issues, TD hired new executives to oversee its financial-intelligence units and elected Maryann Kennedy, a former U.S. banking regulator, to TD’s U.S. board of directors.
On Wednesday, RBC also announced that it had appointed former Wells Fargo chief risk officer Amanda Norton to its board of directors, effective Feb. 1. She previously worked at JPMorgan Chase & Co. JPM-N and Bank of America BAC-N, some of the largest banks in the U.S.
Royal Bank of Canada has made several changes to leadership at City National to address financial shortfalls in its business. In the fall, former Ohio-based Fifth Third Bancorp chief executive officer Greg Carmichael was named as executive chair, along with his former colleagues Howard Hammond as the new CEO and Chris Doll as chief financial officer.
In October, City National said that RBC injected nearly $3-billion into its U.S. division to reinforce its capital. In its fourth-quarter earnings in November, RBC booked an adjusted net loss of US$89-million.
“RBC has made investments in the operational infrastructure of City National, and City National is working to enhance its risk-management capabilities,” RBC spokesperson Sanam Heidary said in an e-mail.
“We are focused on remediating City National’s existing issues following outsized volume growth over the years, and building on City National’s deposit base and retention of clients and advisers, to put City National on a path to enhanced profitability and sustainability in the long run.”
Stefanie Marotta