Royal Bank of Canada temporarily suspended three foreign exchange traders at its London office and forwarded the matter to British securities regulators after an investigation into a breach of the company's internal policies.
Industry sources said RBC recently reinstated the employees but is still determining what sort of discipline to hand down for the infractions, and has not yet decided whether any of them will be fired. The matter is also being looked into by the Financial Services Authority, which polices the financial industry in Britain.
RBC, Canada's largest company by market capitalization, runs one of the world's top 20 currency trading operations. Its foreign exchange revenue reached $92-million in the first quarter of 2005, a record for the bank. Graeme Harris, a spokesman for RBC, confirmed that a probe had been conducted at the London office, but insisted that none of the problems investigated by the bank affected customers or padded the group's bottom line.
He declined to comment on employee suspensions or on the nature of the issues on the trading desk, other than to say they involved “potential breaches” of company rules.
“The situation we investigated took place in [the first fiscal quarter] but did not have any financial impact on our clients, or RBC, or RBC's results,” he said. “We feel we took appropriate action to address the situation.”
The traders were attempting to drive down the value of the New Zealand dollar in early November, and then take advantage of the drop through forward contracts, a type of derivative, according to people familiar with the matter.
A spokesman for the FSA declined to comment specifically on RBC, and said the regulator does not set rules for foreign exchange trading, a largely self-policing industry. However, he said the FSA remains “very interested” in any alleged breakdown in compliance controls in the banking industry.
BMO Nesbitt Burns Inc. analyst Ian de Verteuil described the probe in a research report Tuesday as “slightly negative” for RBC, but said he believes the problem is relatively minor in scope. He said he does not expect it to have a material impact on the bank.
RBC stock closed down 28 cents to $74.60 Tuesday on the Toronto Stock Exchange.
© The Globe and Mail
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