Dive Brief:

• The Royal Bank of Canada will pay a $6 million penalty to settle Securities and Exchange Commission charges that it violated the books and records and internal accounting controls provisions of securities laws related to how it accounted for internally developed software, without the bank admitting or denying the SEC’s findings, according to a press release from the regulator. 

• The Toronto-based bank, between 2008 and 2020, applied a single rate to determine how much of its internally developed software cost to capitalize but lacked a “reliable method” for determining the right rate to apply and instead applied the same capitalization rate every year, the SEC said. 

• “Royal Bank of Canada had longstanding internal accounting control deficiencies that it failed to adequately address,” said Nicholas P. Grippo, director of the SEC’s Philadelphia regional office. “Properly functioning internal accounting controls are a front-line defense and help ensure accurate financial disclosures — the backbone of our capital markets.” 

Dive Insight:

An RBC spokesperson said the company was pleased to have resolved the matter.

“While it was not material to our financial statements, we thoroughly investigated and took action to remediate our processes,” the spokesperson wrote in an email to CFO Dive. “We hold ourselves to the highest standards when it comes our financial governance and controls to ensure that we meet or exceed our regulators’ expectations and the expectations we have for ourselves.”

Separately the Autorité des marchés financiers, which is responsible for financial regulation in the province of Québec, and the Ontario Securities Commission also reached agreements with RBC following a joint investigation into the software matter. The bank agreed to make a voluntary payment as part of its agreement with AMF, according to a release from the regulator. 

“RBC is alleged to have failed to keep such books and records and remediate identified non-compliance with its internal accounting policies as were necessary to properly record the financial affairs of RBC as they relate to the capitalisation of internally developed software,” the AMF release states. “The deficiencies noted by the AMF, although not material to RBC financial disclosures, nevertheless impugned the integrity of Québec's capital markets and RBC's conduct was therefore contrary to the public interest.” 

The Ontario Securities Commission, meanwhile, approved a settlement Friday over the issues related to how it tracked internal software development costs, according to The Toronto Star. 

The settlements come as the need for new accounting standards for tracking software costs in the U.S. has pushed the Financial Accounting Standards Board to update standards for the first time in nearly 40 years. 

The board in September discussed a proposal to set the threshold that will trigger a software initiative to be capitalized as an asset on the balance sheet — rather than as an expense on the income statement — at the time a project is likely to be completed, a benchmark dubbed “probable to be completed,” CFO Dive previously reported.