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TD Bank, Royal Bank of Canada Accused of Trading Malpractice

Zacks Equity Research

The Toronto-Dominion Bank TD and Royal Bank of Canada RY have been accused of being involved in forex trading malpractices. The Ontario Securities Commission has issued a notice of hearing to these Canadian banks, which is to be held on Friday in Toronto.

The statement of allegations, which has been filed separately against each bank, alleges that traders of the banks shared confidential customer information with other participants in chatrooms to gain potential advantage in foreign exchange transactions that took place between 2011 and 2013.

The statement mentioned, “Staff of the Ontario Securities Commission have identified many hundreds of prohibited disclosures throughout 2011-2013.”

Per the regulator, compliance monitoring issues were present at both banks. The banks failed in supervising and controlling their currency trading businesses.

The OSC stated in its filing, “RBC did not sufficiently promote a culture of compliance in the FX trading business, which allowed FX traders to behave in a manner which put RBC's economic interests ahead of the interests of its customers, other market participants and the integrity of the capital markets.”

It added, “Failures of this nature put customers at risk of harm and undermine market integrity. TD's failures in this regard were contrary to the public interest.”

However, the Royal Bank of Canada said in a statement, “The conduct covered by the allegations occurred many years ago, and we have taken a number of steps since that time to enhance our controls. The statement of allegations does not assert any trading misconduct that caused harm to any specific clients.”

Moreover, TD Bank responded with an email, which said, “Serving clients with excellence and integrity is at the heart of our culture and we take matters of this kind extremely seriously.”

This is not the first case of trading misconduct that has been carried out. Various other banks in the past have been fined with huge sums of money for trading malpractices.

Last year in June, the New York regulator fined Deutsche Bank DB with $205 million for improper foreign exchange trading activities it conducted between 2008 and 2013. In May 2018, Goldman Sachs GS agreed to pay nearly $110 million to settle allegations that its traders used an electronic chat room to improperly share clients’ personal information.

Credit Suisse agreed to pay a $135-million fine in November 2017 to settle similar charges put forth by the Department of Financial Services (“DFS”).

Shares of Toronto-Dominion have gained 9.1% so far this year and shares of Royal Bank of Canada have risen 7.8%. Both companies have outperformed the industry’s decline of 6.3% during the same period.





Currently, Toronto-Dominion carries a Zacks Rank #2 (Buy) while Royal Bank of Canada has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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