Royal Bank of Canada will not spin off its US proprietary-trading business

The Royal Bank of Canada will not be spinning off its US proprietary-trading business into a hedge fund after American regulators rejected their proposal.

It has become increasingly difficult for foreign banks to operate in the US because of financial restrictions that have been implemented since the financial crisis.

A spokesman for Royal Bank, Kevin Foster, said:

“We are actively working to restructure our proprietary trading business to comply with the Volcker Rule ahead of the July 2015 deadline”

“A spin-out of GAT in its current form will not proceed,” he said, referring to the Global Arbitrage and Trading unit.


According to Bloomberg, RBC had planned on investing up to $1 billion in a hedge fund managed by the bank’s New York proprietary traders. However it was not welcomed by the Federal Reserve or the S.E.C.

The fund, Taursa Capital Partners, was going to begin operations toward the end of the year.

By creating the fund RBC would have had the chance to profit indirectly from trading that it could not keep-in-house in New York because of the Volcker rule, which restricts a bank’s ability to trade their own money. The Volcker Rule, put forward by ex-Federal Reserve Chairman Paul Volcker, prohibits banks from gambling with depositors’ money.

Approximately 1.5 percent of the Royal Bank’s revenue is generated from proprietary trading, which is “not a significant thing for us”, according to Chief Financial Officer Janice Fukakusa.

Foster said:

“We do not expect there to be a material impact on RBC’s revenue in any of the scenarios currently contemplated.”