SEC Charges Royal Bank of Canada with Internal Accounting Controls Violations

The Securities and Exchange Commission today announced that Canada’s largest bank, Royal Bank of Canada, will pay a $6 million penalty to settle charges that it violated the books and records and internal accounting controls provisions of the securities laws relating to its accounting for its costs of internally developed software.

The SEC’s order finds that, from 2008 through 2020, Royal Bank of Canada’s accounting controls failed to ensure that the firm accurately accounted for its internally developed software project costs. The order finds that, for a portion of its internally developed software projects, Royal Bank of Canada applied a single rate to determine how much of those projects’ costs to capitalize, but it lacked a reliable method for determining the appropriate rate to apply, in part because it could not adequately differentiate between capitalizable and noncapitalizable costs. This resulted in, among other things, the bank using the same capitalization rate each year without a sufficient basis and capitalizing certain costs that were ineligible under the appropriate accounting methodology.

“Royal Bank of Canada had longstanding internal accounting control deficiencies that it failed to adequately address,” said Nicholas P. Grippo, Regional Director of the Philadelphia Regional Office. “Properly functioning internal accounting controls are a front-line defense and help ensure accurate financial disclosures—the backbone of our capital markets.”

The SEC’s order finds that Royal Bank of Canada violated the internal accounting controls and books and records provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, Royal Bank of Canada has agreed to cease and desist from committing or causing any violations or any future violations of these provisions. Royal Bank of Canada also agreed to pay a $6 million civil penalty, offset by amounts paid to Canadian regulatory authorities as a result of the same conduct. The SEC considered Royal Bank of Canada’s remedial acts in determining to accept the settlement.

The SEC's investigation was conducted by Norman P. Ostrove and was supervised by Julia C. Green, Scott A. Thompson, and Mr. Grippo, all with the Philadelphia Regional Office. The SEC appreciates the assistance of the Ontario Securities Commission and Quebec’s Autorité des Marchés Financiers.


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