Spitzer to drop RBC inquiry

Although the attorney general’s office refused to comment on the case, which was opened last March when it served a subpoena requesting information from RBC, sources close to the investigation confirmed it had been dropped. The case has not been closed, however, and the current position could change if any of RBC’s clients were to file a complaint with Spitzer’s office, said the source.

Spitzer’s interest in RBC stemmed from reports in the UK financial press that Canada’s largest bank had failed to return excess funds on forex deals that two separate clients had paid it accidentally. The report alleged that RBC had failed to return funds promptly, instead placing them in a separate account.

In the first instance, dating from 1996, Demirbank in Turkey overpaid RBC $50,000, according to the UK’s Financial Times. This money was placed in a separate account and returned within two months, said an RBC source.

The second case cited involved US mutual fund manager Franklin Templeton, which in 2001 accidentally paid late fees twice – and repaid an overpayment that had already been returned to it by RBC.

A source close to RBC said the bank was confident the documentation provided to the attorney general’s office clarified that mistakes in payments occur in both directions and all are rectified in due course. This can take anything from 10 minutes to several weeks, he said, and the examples of Demirbank and Franklin are extremely rare.

The source added that cases such as Franklin Templeton’s are becoming less frequent as electronic trading increasingly becomes the norm, allowing back-office staff to concentrate on exceptions that do occur and settle them more quickly.

The case first came to light two years ago, when a back-office employee at RBC alerted UK regulation authority the Financial Services Authority of overpayments made to the bank. This employee remains on unpaid leave, said the source close to RBC last week.

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