SEC Charges Royal Bank of Canada with Internal Accounting Controls Violations

The Securities and Exchange Commission (SEC) has announced that Royal Bank of Canada, the country's largest bank, will pay a $6 million penalty to settle charges of violating books and records and internal accounting controls provisions of securities laws related to its accounting for internally developed software costs.

According to the SEC's order, Royal Bank of Canada's accounting controls failed to ensure accurate accounting for internally developed software project costs from 2008 through 2020. The bank applied a single rate to determine the capitalization of these projects' costs, but it lacked a reliable method for determining the appropriate rate, as it couldn't differentiate between capitalizable and noncapitalizable costs. This led to the bank using the same capitalization rate each year without a sufficient basis and capitalizing certain ineligible costs under the appropriate accounting methodology.

Nicholas P. Grippo, Regional Director of the Philadelphia Regional Office, stated, "Royal Bank of Canada had longstanding internal accounting control deficiencies that it failed to adequately address. 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. The bank has agreed to cease and desist from causing any future violations of these provisions without admitting or denying the findings. Additionally, the bank will pay a $6 million civil penalty, offset by amounts paid to Canadian regulatory authorities for the same conduct. The SEC considered Royal Bank of Canada's remedial actions when accepting the settlement.

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