British Columbia Securities Commission reprimands Bank of Montreal

The British Columbia Securities Commission (BCSC) has formally reprimanded the Bank of Montreal (BMO) after it admitted that it inadequately supervised an employee who facilitated the illegitimate transfer of securities.

The employee, employed with the bank for more than 50 years, was authorized to use an imprint stamping device, known as a medallion, to guarantee signatures on approximately 100 security transfer forms for shares of six venture companies. The employee provided the guarantees while failing to verify the registered owners’ identities and without recording details or retaining copies of the documents he examined to demonstrate the validity of the guarantee. The BCSC says the employee also accepted assurances from company directors that the signatures on the forms were authentic.

“The employee’s conduct left the securities transfer system vulnerable to abuse by the company directors, who had issued the share to nominees and wanted to transfer the shares back to themselves or others whenever it was convenient to do so,” the BCSC states. “By not adequately supervising the employee, BMO permitted him to engage in conduct that was abusive to the capital markets and contrary to the public interest.” In the settlement agreement with BMO, the BCSC further says that the conduct was contrary to the public interest because it facilitated the illegitimate securities transfers and enabled market participants to hide the true state of share ownership for a number of publicly traded companies. The public companies group at BMO no longer provides the medallion guarantee service.

Most of the guarantees provided were issued in 2014 and 2015 and the employee involved has since retired. Their supervisors from 2013 to 2017 are also either retired or no longer work for BMO. The reprimand states that BMO failed to ensure the employee adhered to procedures, did not confirm the employee kept appropriate records, and did not adequately audit the employees’ work to determine if he was using the medallion correctly.

The BCSC’s executive director, Peter Brady says in a statement that “even if the abusive activity doesn’t violate specific provisions of the Securities Act and we can’t impose financial penalties, we will use the breadth of our power to deter future misconduct.”