The US Office of the Comptroller of the Currency (OCC) has levied a US$65 million fine against City National Bank, a subsidiary of the Royal Bank of Canada (TSX: RY), due to deficiencies in its internal controls and risk management processes.
This move is part of a broader trend of enhanced regulatory scrutiny over financial institutions’ compliance with anti-money-laundering regulations by Canadian and US authorities.
City National Bank, based in Los Angeles and known for its high-profile clientele in Hollywood, was acquired by RBC in 2015. The bank has been directed to undertake comprehensive internal reforms to address gaps in various areas, including third-party risk management, change management, internal controls testing, and fraud risk management.
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While the OCC’s announcement did not cite specific incidents of misconduct, it highlighted the bank’s engagement in practices deemed unsafe or unsound due to ineffective risk management and internal controls.
In response to the OCC’s findings, City National has committed to enhancing its infrastructure and banking services to align with its size and business model.
This regulatory action against City National comes amidst a series of penalties and fines imposed on RBC and its peers for regulatory infractions, including a US$31 million fine for discriminatory lending practices and a $7.5 million penalty by Canada’s Financial Transactions and Reports Analysis Centre (FinTRAC) for violations related to money laundering and terrorist financing.
RBC has undertaken leadership changes within City National to rectify these issues, including appointing former executives from Fifth Third Bancorp and injecting nearly $3 billion to bolster its US division’s capital.
Additionally, RBC has made appointments to its board of directors, including former Wells Fargo chief risk officer Amanda Norton, to strengthen its risk management and operational infrastructure.
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