The SFC has fined RBC Investment Management (Asia) HK$4 million in relation to its provision of investment advice to clients.

Hong Kong's Securities and Futures Commission has fined Royal Bank of Canada Investment Management (Asia) HK$4 million ($500,000) for inadequate due dilligence of investment products before selling them to clients.

The SFC said it had reduced the fine after RBC agreed to repurchase some products and compensate certain clients after it advised on a number of non-SFC authorized funds between November 2006 and July 2008. Neither firm said how much the fine had been reduced from. 

The SFC's probe found that RBC did not provide adequate guidance to its staff on conducting due diligence on funds, before making investment recommendations.

"RBC relied on its Singapore office to conduct due diligence on investment products but it saw no record of any due diligence conducted by its Singapore office, and therefore was not aware of the scope and the extent of any due diligence carried out by its Singapore office," said the SFC in a statement.

RBC did not provide adequate practical guidance to relationship managers in providing investment advice or recommendations. RBC also did not have any measure for the overall risk of investment products it sold, nor did it have procedures requiring its relationship managers to document their advice. Therefore, it was difficult for the relationship managers to ensure that the advice and recommendations they provided would best fulfill the clients' investment objectives as they did not record or document any product suitability assessment they had undertaken, said the SFC.

The SFC said that RBC has made adequate steps to restore faith in clients. "The SFC acknowledges RBC's full co-operation to resolve the SFC’s concerns and notes that RBC has strengthened its internal systems and controls in respect of its distribution of unlisted investment products. As a consequence, the SFC has reduced the fine," said the watchdog.

“Concerns over misconduct, like the ones in this case, test the values of organisations. The response to problems is often a much better indicator of an organisation’s integrity and values than the fact of the problem itself. RBC responded to our concerns immediately for the benefit of its customers and passed this test,” the SFC’s executive director of enforcement, Mark Steward said.

A Singapore-based spokesman for RBC said: "RBC Wealth Management takes our regulatory requirements very seriously. We fully cooperated with the SFC to address its concerns related to our practices and procedures in our Hong Kong office from 2006 to 2008."
 
"We have made significant improvements to our governance, risk management and compliance structure since 2008. RBC Wealth Management in Asia has a robust, global standard of governance best practices."

The news comes as suitability practices become an increasing hot potato in the industry, with many banks stepping up their risk profiling procedures in light of increased regulatory oversight. At a recent WealthBriefing event held in Zurich, entitled 'Beyond Box-Ticking: Leveraging Enhanced Risk-Profiling To Enhance Client Experience', wealth managers were found to view risk-profiling as key to improving relationships and empowering clients, but believe the systems and processes prevalent in the industry often thwart these wider aims. Read more here.