The investment banking subsidiary of one of Canada’s largest banks has been fined $60 million in the United States for violations related to its securities and derivatives recordkeeping.
The U.S. Securities and Exchange Commission (SEC) announced Aug. 8 it had charged 10 brokerage firms, including Bank of Montreal (BMO) Capital Markets Corp., for “widespread and longstanding failures” to maintain and preserve electronic communications between clients and its stockbrokers and advisors.
Collectively the SEC fined the firms $289 million, with BMO being charged a $25 million fine.
The violations, which BMO admitted to in a settlement agreement, pertained to employees, including at the senior level, using their personal computers and cell phones to communicate with clients on business dealings without maintaining those records.
BMO “did not maintain or preserve the substantial majority of these written communications,” the settlement stated.
BMO’s recordkeeping failures “likely impacted the Commission’s ability to carry out its regulatory functions and investigate violations of the federal securities laws across these investigations,” added the agreement.
BMO Capital Markets Corp. is based in Delaware and is a direct subsidiary of BMO Financial Corp., a bank holding company and financial holding company headquartered in Illinois.
The SEC stated it has brought 30 enforcement actions and ordered over $1.5 billion in penalties.
“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws,” said Sanjay Wadhwa, the SEC's deputy director of enforcement.
“Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors.”
In addition to the SEC fine, the U.S. Commodity Futures Trading Commission (CFTC) fined Bank of Montreal $35 million “for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.”
The two fines are related to one another, according to both regulators.
Canadian oversight conducted by provincial commissions and CIRO
The CFTC regulates the derivatives market and has a memorandum of understanding with Canadian regulators, including the B.C. Securities Commission, to “enhance” cross-border supervision.
In the past year, two Vancouver stockbrokers from Research Capital Corp. have been fined for not keeping proper records of their communications.
Canadian Investment Regulatory Organization (CIRO) penalized Robert Barber and Tiffany Sweeney in 2022 for gatekeeping failures. Both communicated with clients on personal devices and Barber was found to have deleted text messages.
CIRO, which regulates mutual fund dealers and stockbrokers, plus their firms, did not levy any fines or penalties against Research Capital in those two instances.
