RBC Investor Services Bank S.A.
RBC Investor Services Bank S.A.Société anonymeConsolidated Annual ReportFor the year ended October 31, 201914, Porte de FranceL-4360 Esch-sur-AlzetteR.C.S. Luxembourg: B 47.192
RBC Investor Services Bank S. A.ContentsDirectors’ ReportPage3Business review and results4Corporate governance as at 31 October 20199Risk managementAudit report1015Consolidated financial statementsConsolidated statement of profit or loss23Consolidated statement of comprehensive income24Consolidated balance sheet25Consolidated statement of changes in equity26Consolidated statement of cash flows28Notes to the consolidated financial statements292
RBC Investor Services Bank S. A.Directors’ ReportThis report should be read in conjunction with the consolidated financial statements, which have been prepared inaccordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”)and the related notes to the consolidated financial statements included in this consolidated annual report.The preparation of consolidated financial statements requires management to make estimates and assumptions inthe application of certain accounting policies that materially affect the reported amounts of assets, liabilities,revenues and expenses. Actual results could differ from those estimates.All references in this report to “RBC Investor Services”, “RBCIS”, “RBC IS Bank”, “Group”, “Bank”, “we”, “us”, “our”or similar terms mean RBC Investor Services Bank S.A. and its subsidiaries on a consolidated basis.All references in this report to “year”, or “financial year” or similar terms mean the period from November 1, 2018to October 31, 2019.Readers should not place undue reliance on these statements as a number of important factors could cause theactual results to differ materially from the beliefs, plans, objectives, expectations and intentions expressed in suchforward-looking statements.3
RBC Investor Services Bank S. A.Business Review and ResultsBusiness descriptionRBC Investor Services Bank S.A. is a Bankheadquartered in Luxembourg.Operations are conducted throughout RBC InvestorServices Bank S.A. and its subsidiaries and branches(“Group”) around the world (see Note 34).Branches and subsidiaries of the Bank are located inHong Kong, Ireland, Italy, London, Switzerland, NewYork, France, Belgium, Singapore and Malaysia.The Group offers institutional investors anintegrated suite of products, including global custody,fund and pension administration, securities lending,shareholder services, analytics and other relatedservices.The Group offers clients a unique value proposition –the geographic reach of a global player, together withthe client service quality of a local provider. TheGroup has 2,719 employees (average FTE) whoprovide award-winning client services. The Groupoperates through a global custody network thatcovers more than 80 markets.The Group is owned by Royal Bank of Canada. It isindependently capitalised and is rated AA- byStandard & Poor’s. The Group and the RBC ISInvestor Services Trust business (“IS Trust”) togetherrepresent RBC’s Investor & Treasury Servicesbusiness segment which provides specialist custodyservices and integrated funding and liquiditysolutions for clients.The Group’s activitiesThe Group provides services to clients whichincluding Custody Services, Fund Administration,Shareholder Services, Treasury and Market Services,Trustee and Depositary Services and Private CapitalServices.Custody ServicesThe Group offers both Luxembourg and Internationalclients global custody services that includessafekeeping, settlement, corporate actions, incomecollection, proxy voting, tax services and entitlementsprocessing. The main objective of this unit is tomanage the full range of custody products andservices throughout their lifecycle. The unit adaptsand develops product capabilities with clear focus onenhancing the client experience while protecting theGroup’s leadership in the industry.Through its various initiatives, the unit supportsbusiness growth and helps drive product efficiencyand profitability.Fund Administration ServicesThe Group clients are drawn from a wide geographicbase and promote a variety of fund structures thatare distributed globally. The Group has a wealth ofexpertise with respect to a variety of fund structures,and coupled with a strong foothold in the industry,ensures the provision of fund services of the highestcalibre. The main services include investmentoperations, trade order matching fund accounting,valuation, unit pricing and client reporting.Fund Accounting is the most significant activity inthis unit. This is carried out by the accounting teamwithin the Fund Administration department.Operations includes Net Asset V alue (NAV )production and maintenance of accounting records ofthe fund/sub-fund.Shareholder ServicesThe Group provides its clients with the full spectrumof shareholders services including registrar andtransfer agency, cash management, fee processing,dedicated quality assurance, e-business facilities(clearing, online dealing, SWIFT, National ication (distributors and shareholders), andreporting.The Group provides distribution support andaccurate record keeping for its clients involved inglobal asset management. It delivers an integratedoperating model in off-shore and on-shore marketsfor all types of products (mainstream, money market,hedge fund, insurance, ETF, real estate, privateequity).Shareholders services are integrated servicesdesigned to mitigate risks, efficiently manage costsand help clients, advance their growth strategies.Treasury managementTreasury and Market Services provide the Group’sclients with a wide range of services that supporttheir business. The Group focuses on the evolution oftreasury markets to understand asset managementflows and to provide specific solutions to their clients’needs. Competitive pricing, accurate settlements andintegrated systems are the basis to add value toclients’ treasury processes. Treasury and MarketServices include services such as Foreign Exchange,Treasury Services and Cash Management, SecuritiesLending and Client Lending.4
RBC Investor Services Bank S. A.Trustee and Depositary ServicesTrustee & Depositary services (TDS) is a mandatory(regulatory) component of acting as a custodian of EUregulated funds. TDS activities include deliveringhigh quality compliance monitoring for a broad rangeof investment funds, including Undertakings forCollective Investments in Transferable Securities(UCITS) and Alternative Investment Funds (AIF).The services include: monitoring investmentcompliance, oversight of NAV calculations, oversightof subscriptions and redemptions, oversight ofdistributions, monitoring timely settlement oftransactions, cash flow monitoring and otherfiduciary services.Private Capital ServicesThe Group provides specialist services to thealternative asset sector which includes the realestate, private equity, infrastructure and debt funds.Services that are offered support the full life-cycle ofalternative funds. The Group supports onshore andoffshore regulated and unregulated structures fromits locations in Luxembourg, France and Ireland. Ourservice offering is an extension of the existingproduct offering except that the product is targeteddirectly to this asset class and generally offered toclients as a bundled service. Services offered toclients includes; custody services, fund accounting,shareholder services, committed lending services,and fund corporate services.Operating EnvironmentThe 2019 operating environment was challenging forthe business of the Group. Macro economic factorsinclude rising trade tensions and uncertainty aboutthe global economic outlook weighing on sentimentand negative interest rates in European Union andSwitzerland. The US Federal Reserve cut itsbenchmark interest rate for the third time incalendar 2019 in October but signalled that furtherrate cuts are unlikely as long as the economic outlookevolves in line with expectations. Euro area GrossDomestic Product (GDP) is expected to grow by 1.2%in calendar year 2019, which is down from a 1.9%increase in calendar year 2018. Growth in Germany,the euro area’s largest economy, has slowed amid asustained downturn in the industrial sector. Growthin other major euro area remains modest, withweakness in manufacturing generally being offset bystronger services sector activity.The European Central Bank (ECB) er 2019, cutting its key interest rate furtherinto negative territory and restarting quantitativeeasing. Growth in the U.K. is expected to slow to1.3% in calendar year 2019 from 1.4% in calendaryear 2018 as ongoing uncertainty about Brexitcontinues to weigh on business sentiment andinvestment. Euro area GDP growth is expected toremain steady at a relatively modest pace in 2020,with some help from slightly more stimulative fiscalpolicy, while growth in the U.K. economy is expectedto slow further.We continue to monitor and prepare for regulatorydevelopments and changes in a manner that seeks toensure compliance with new requirements, whilemitigating adverse business or financial impacts tothe extent practicable. Such impacts could resultfrom new or amended laws or regulations and theexpectations of those who enforce them. Significantdevelopments include continuing changes tostandards on capital and liquidity, global tradeagreements, legislative developments on dataprivacy, amendments to anti-money launderingregulations and European regulatory reforms.Business Highlights of 2019Lower interest rates have contributed to lowerearnings from provision of treasury services and alsoresulted in margin compression associated with ourclient deposits. Competitive pressures in our marketshas also resulted in a 5% decrease of assets undercustody and compression of margins earned fromprovision of custody services.In recognition of the challenging macroeconomicconditions and operating environment, the Board ofthe RBC IS Bank S.A. approved on October 23, 2019,a restructuring program, in order to make thebusiness more competitive and position the businessfor future growth. The cost of the restructuringprogram is EUR 39 million and the provision wasrecorded in the financial statements in October 2019.The Bank has agreed a social plan with employeerepresentatives of the Bank in respect of therestructuring stment funds such as private equity and realestate assets represented a significant share of newbusiness, underscoring the strength of group’s valueproposition. The Group’s dedication to quality andservice excellence resonated with clients again thisyear.The Group continues to benefit from the globalisationof the asset management business and increasingoutsourcing activity across both middle and backoffice functions. Reflecting the growing sophisticationof the fund industry, the demand for value-addedservices, a key revenue contributor, is expected toincrease. The Group is well positioned to takeadvantage of future fund industry growth andincreasing allocations to alternative investments inkey jurisdictions.5
RBC Investor Services Bank S. A.The RBC Investor & Treasury Services platformimplemented a new transfer pricing methodologycalled Residual Profit Split, (“RPS”), effectiveNovember 2018, which reflects the increasinglyintegrated business model across the Group and ISTrust businesses.loss for the year ended October 31, 2019 wasEUR 153 million, a reduction of 13% compared with2018 (EUR 176 million). The principal drivers of thisvariance were lower fees from provision of foreignexchange services to customers as a result of lowerclient mandated FX transactions.Key FiguresNet operating revenue was EUR 466 million, adecline of 9% versus 2018 (EUR 515 million) duemainly to lower revenue from financial instruments(EUR 23 million), and competitive pressures in ourmarkets resulting in lower fees earned from provisionof investors services (EUR 19 million).Analysis of the consolidated statement ofprofit or lossNet profit after taxIn 2019, the Group’s net profit after tax wasEUR 28 million (2018: EUR 67 million). The declinein net profit after tax was due mainly to lower feeand commission income from investor services(EUR 19 million), lower income from financialinstruments (EUR 23 million), costs of therestructuring program (EUR 36 million), offset bylower general and administrative expenses (EUR 32million) and recognition of deferred tax asset in ourFrench entities (EUR 6 million).The Group derives its revenues principally from twostreams: fee and commission income and incomeearned from financial instruments.Fee and commission incomeThe Group earns fee income from the provision ofcustody, fund administration, shareholder services,securities lending and related value added services toclients. The Group sub contracts provision of custodyservices to third parties in specific markets andincurs commission expenses. The net fee andcommission income for 2019 was EUR 313 million,which was a 6% decline compared with 2018 (EUR332 million), driven by competitive pressures in ourmarkets which the Group serves, which has resultedin a decline of 5% in Assets under Custody (2019EUR 473 billion, 2018 EUR 501 billion).Income from financial instrumentsOperating expensesTotal operating expenses were EUR 439 million, anincrease of 2% versus 2018 (EUR 431 million), drivenbythecostsofrestructuringprogram(EUR 39 million) in order to make the business morecompetitive and position the business for futuregrowth, increased depreciation (EUR 4 million)arising from investment in technology, offset bylower generalandadministrativeexpenses(EUR 32 million) due to tight containment of costsincluding reduction in costs of professional fees andtechnology costs and positive impact resulting fromthe change in transfer pricing methodology, andlower provisions for litigations and operating riskevents (EUR 4 million).Income TaxIncome tax credit for the year ended October 31, 2019of EUR 1.5 million compared to a tax expense ofEUR17.2millionfortheyearendedOctober 31, 2018. The key drivers of this variance aredue to the decline in Profit before income tax fromEUR 84.4 million (effective tax rate of 18.3%) toEUR 26.9 million (effective tax rate of 22.1%), andrecognition of deferred tax asset (EUR 6.0 million) onthe basis that there is a reasonable expectation ofsustainable profits in the future and themanagement’s forecast support the assumption thatthe results of the future operations will generatesufficient taxable income to utilize the deferred taxasset.Income from financial instruments comprises mainlyNet interest income (EUR 39 million) and Netincome from financial instruments at fair valuethrough profit or loss (EUR 114 million). NetIncome from financial instruments at fair valuethrough profit or loss comprises fees earned fromprovision of foreign exchange services and derivativeproducts to customers. Net Income from financialinstruments at fair value through profit or loss isdependent mainly on customer transactions, andupon the global stock markets, foreign exchangevolatility and cross border client investment flows.The sum of Net interest income and Net income fromfinancial instruments at fair value through profit or6
RBC Investor Services Bank S. A.Consolidated balance sheetTotal assets as at October 31, 2019 wereEUR 18.2 billion, a decrease of 1.2% over 2018(EUR 18.4 billion).Cash, balances with central banks andloans and advances due from banksTotal cash and balances with central banks and loanand advances due from banks were EUR 14.9 billionas at October 31, 2019, a decline of 3% comparedwith 2018 (EUR 15.4 billion). and representing 82%of total assets of the Group (84% 2018). Refer toNotes 14, 15 and 16 for additional information.Loans and advances to customersLoans and advances to customers amounted toEUR 940 million as at October 31, 2019 (5% of totalassets), a decline of 28% compared to 2018(EUR 1,299 million). The lending activity iscorrelated to the custody business. In this respect,most of the loans consist of securities settlementadvances, temporary overdrafts, or funds financefacilities secured by guarantees, cash or securities.The decrease in lending activity was due mainly toincreased origination of loans to clients from the RBCCapital Markets division in London. For additionalinformation, refer to Note 17.Investments securitiesInvestments securities amounted to EUR 1.4 billionas at October 31, 2019, an increase of 55% comparedto 2018 (EUR 0.9 billion). Investment securities are7.6% of total assets of the Group and consist mainlyof bonds issued or backed by governments andentities operating in the Organisation for EconomicCooperation and Development “OECD” area.EUR 358 million of these securities have beenprovided as collateral to enable the Group to operatein financial markets. For additional information,refer to Notes 18 and 38.Goodwill and other intangible assetsGoodwill amounted to EUR 84 million as at October31, 2019 (2018: EUR 84 million), which wasgenerated from the acquisition of businesses of theGroup in prior years. Other intangible assets areEUR 68 million (2018: EUR 70 million). Otherintangible assets consist mainly of internallydeveloped software EUR 60 million (2018 EUR 57million). Additions of internally developed softwarewas EUR 48 million during the year. Disposals ofinternally developed software was EUR 36 million ofwhich EUR 35 million was in respect of the sale bythe Group to RBC Investor Services Trust UKBranch of Enhancement Assets developed for theMilvus custody system. RBC Investor Services TrustUK Branch will own these assets and provideaccount operator services to the Group, in accordancewith the Master Services Agreement signed betweenthe parties. For additional information, refer to Note20.Other assetsOther assets were EUR 223 million as atOctober 31, 2019 (2018: 193 million). Other assetsconsist mainly of accrued income not yet billed toclients and accounts receivable towards relatedparties. Refer to Note 21 for additional information.Deposits from banksDeposits from banks were EUR 316 million as atOctober 31, 2019 (2018 EUR 711 million) and consistmainly of demand, term and overnight deposits. Foradditional information, refer to Note 22.Deposits from customersDeposits from customers were EUR 15.9 billion(2018: EUR 15.8 billion) and represents 93%, of totalliabilities as at October 31, 2019. These liabilities aregenerally in the form of interest bearing demanddeposits and cash collateral received fromcounterparties. For additional information, refer toNote 23.EquityTotal equityTotal equity was EUR 1,293 million, an increase of2% compared to 2018 (EUR 1,264 million). Our totalequity qualifies as tier 1 capital. The capital ratiowas 25.2% as at October 31, 2019, an increase of 385basis points compared to 2018 (21.35%) and was wellin excess of the capital ratio requirement per Pillar 2Basel III requirements (16%). For additionalinformation, refer to Note 31(c).Assets under Custody &AdministrationAssets under Custody (“AUC”) as at October 31, 2019were EUR 473 billion, a decrease of 5.0% over 2018(EUR 501 billion), reflecting competitive pressures inthe markets.Assetsunder Administration (“AUA”)wasEUR 1,105 billion and consistent with 2018(EUR 1,107 billion).7
RBC Investor Services Bank S. A.Strategic Outlook 2020The Group expects continued headwinds to impactthe asset services industry over the next 12 months.In particular, the Group believe the investmentindustry will continue to face pressures and will, inturn, continue to press asset services providers onfees. In response, asset services providers need to bedisciplined and focused on the right clients andgeographies. Custodian Banks need to deliver highquality services that represent value for money and abest-in-class client experience. Custodian Banksm
RBC Investor Services Bank S.A. 4 Business Review and Results Business description RBC Investor Services Bank S.A. is a Bank headquartered in Luxembourg. Operations are conducted throughout RBC Investor Services Bank S.A. and its subsidiaries and branches (“Group”) around the world (see Note 34).
2 RBC FUNDS AND RBC PRIVATE POOLS Annual Information Form Name, formation and history of the funds This annual information form contains information about the RBC Funds (collectively, the RBC Funds) and the RBC Private Pools (collectively, the RBC Private Pools and together with the RBC Funds, the ) listed on the cover page. In this document:funds › we, us and our refer to RBC Global Asset .
2 RBC FUNDS AND RBC PRIVATE POOLS Annual Information Form Name, formation and history of the funds This annual information form contains information about the RBC Funds (collectively, the RBC Funds) and the RBC Private Pools (collectively, the RBC Private Pools and together with the RBC Funds, the ) listed on the cover page. In this document:funds we, us and our refer to RBC Global Asset .
The views expressed herein reflect the RBC GAM-US as of 6.30.17. Views are subject to change at any time based on market or other conditions. RBC Global Asset Management (U.S.) Inc. (“RBC Global Asset Management - US” or “RBC GAM-US”) is a federally registered investment adviser founded in 1983. RBC Global Asset Management (RBC GAM) is the
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