Royal Alliance Settle Charges

On November 13, 2020, Royal Alliance agreed to settle charges that it failed to adopt and implement policies and procedures reasonably designed to prevent unsuitable investments in volatility-linked exchange-traded products (“ETPs”). As a result, Royal Alliance IARs used their discretionary authority over client accounts to buy and hold a complex ETP for time periods that were inconsistent with the purpose of the product as described in its offering materials. Royal Alliance IARs on behalf of advisory accounts bought and held for extended periods a security called iPath S&P 500 VIX Short–Term Futures ETN (“VXX”). VXX attempts to track the implied volatility of the S&P 500 Index (the “S&P 500”) through the use of short-term futures contracts. As disclosed in the VXX prospectus, the constant buying and selling of these contracts by the issuer creates roll costs in most instances. As the roll costs are deducted from VXX’s returns, its value was likely to—and, in fact did—decrease when held longer than very short periods, even if the futures index that VXX tracks was flat or positive from the start to end of that period. Approximately 108 accounts of Royal Alliance’s advisory clients held VXX for periods extending to several months and, in some cases, years. The increased risk from the extended holding periods resulted in significant losses in the affected accounts. While Royal Alliance had policies and procedures that cautioned against holding other similarly risky complex and structured products for extended periods, Royal Alliance had no policies or procedures concerning products designed to track the implied volatility of the S&P 500. Likewise, while Royal Alliance trained its representatives concerning the risks of these other products, it provided no training on volatility ETPs like VXX, even though it knew that certain of its IARs were trading these products for their clients. Royal Alliance agreed to pay disgorgement, prejudgment interest, and a civil money penalty totaling $502,400 of which $500,000 is a penalty and disgorgement of less than $2,000. []