'Lax supervision' at Bank of Montreal, B.C. regulator says in public reprimand

A woman leaves a Bank of Montreal branch in downtown Vancouver in a March 22, 2011 file photo. THE CANADIAN PRESS/Darryl Dyck

British Columbia's financial markets regulator has publicly reprimanded the Bank of Montreal for inadequately supervising an employee who engaged in "conduct that was abusive to the capital markets."

The conduct happened between 2013 and 2017, according to a statement from the B.C. Securities Commission.

During that time period, the employee – who worked for BMO for more than 50 years and has since retired – was authorized to use a medallion that guarantees the signatures on securities transfer forms.

A settlement agreement between BMO and the BCSC explains that the medallions are used by BMO and other financial institutions to verify that the signatures on the forms are authentic and were properly obtained. 

According to the commission, the employee used the bank's medallion to guarantee signatures on roughly 100 forms for six companies, essentially vouching for the legitimacy of the transactions in question without taking the proper steps to verify that they were, in fact, legitimate.

The BCSC said in its statement that the employee failed to:

• Verify the identity of the securities' registered owners by meeting them in person, comparing their identification and requiring them to sign in his presence
• Record the names of people whose signatures he guaranteed, the dates he did so, or the name of the certificates’ issuer
• Record or retain copies of documents he examined to demonstrate the validity of the guarantee

In the settlement agreement, the bank admitted that it had not adequately supervised the employee.

"The inadequate supervision permitted the employee to engage in conduct that was abusive to the capital markets because it facilitated illegitimate securities transfers," the agreement reads.

The agreement also notes that the employee's supervisors during the period when the misconduct happened have all retired or left BMO, and says that the bank has improved its supervisory practices regarding the use of the medallions.

The division of BMO that the employee worked for at the time of the misconduct no longer offers medallion services, according to the settlement agreement.

"The BCSC will take action against anyone who acts contrary to the public interest while engaging in trading-related activities," said Peter Brady, executive director of the BCSC, in the commission's statement.

"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."