Bank to the stars fined $65M over risk control failures

City National Bank, the Los Angeles-based lender owned by Canada’s largest financial institution, has been hit with a $65 million civil penalty for failing to keep proper risk controls. 

The Office of the Comptroller of the Currency announced Wednesday that the bank is required to take “broad and comprehensive corrective actions” to strengthen its internal practices.

The OCC found that City National “engaged in unsafe or unsound practices” related to the management of operational risk, strategic risk, investment management practices and compliance, including practices related to the Bank Secrecy Act and anti-money laundering and fair lending rules. 

The bank did not admit to or deny the regulator’s findings, but spokespeople for both City National and Royal Bank said that the lender has committed to addressing the regulator’s concerns, suggesting some of the issues emerged as the bank expanded in recent years. 

“To be clear, this was about policy and procedures and did not involve actual money laundering,” Diana Rodriguez, a spokesperson for City National, said in an interview.

City National, known for its Hollywood clientele, was acquired by Royal Bank of Canada in 2015 for $5 billion. Since then, its California subsidiary has tripled its assets to about $100 billion, using RBC’s capital markets and wealth-management franchises to cross-sell to a broader range of clients and getting into the jumbo-mortgage business. 

But as regional banks faltered last year, Royal Bank had to inject almost $3 billion in capital into City National’s balance sheet when its subsidiary turned to high-cost funding after facing a decline in deposits. Over the course of the fall, Royal Bank brought in a new team of executives to run City National, replacing its chief executive and finance officers and naming a new chair of the board. 

This is not the first time City National has faced regulatory action. Just over a year ago, the bank agreed to a $31 million settlement with the US Justice Department over redlining allegations related to its mortgage-lending practices. 

“City National, and our new executive management team, are committed to resolving the matters identified in the OCC’s order as quickly as possible,” Rodriguez said in an emailed statement. “Our focus will continue to be on both strengthening our infrastructure and systems to reflect a bank of our size and business model, while at the same time providing our clients with consistently outstanding banking products and services”

“We are not issuing any personnel or leadership changes as a result of this,” she said.

In September, the bank named former Fifth Third Bancorp CEO Greg Carmichael as executive chair. Shortly after, he was joined by two of his former Fifth Third colleagues. Howard Hammond was named the new CEO, replacing Kelly Coffey, while Chris Doll took over as CFO from John Bai. 

The Canadian bank reported an adjusted net loss of $89 million at City National in its fiscal fourth quarter but has said it’s optimistic that the bank’s fortunes will turn around.  

“We are focused on remediating City National’s existing issues following outsized volume growth over the years, and building on City National’s deposit base and retention of clients and advisers, to put City National on a path to enhanced profitability and sustainability in the long run,” Royal Bank spokesperson Sanam Heidary said.