BMO agrees to pay $40M US settlement on SEC charges related to bond selling
The U.S. Securities and Exchange Commission says BMO has agreed to pay more than $40 million US to settle charges related to the bank’s alleged supervision failure in bond selling.
The regulator said Monday the apparent lack of oversight allowed employees in the BMO Capital Markets division to allegedly sell residential mortgage-backed bonds using misleading metrics.
According to the SEC order, adding a small amount of higher-interest paying mortgages to the backing pool would distort how the collateral was reported by third-party data providers.
It says adding just $1,000 US worth of higher-interest paying mortgages to millions of dollars of lower-paying mortgages would make it seem like the bond was backed by a large amount of the more attractive, higher interest rate mortgages.
The SEC alleges BMO sold $3 billion US worth of bonds with such a structure between December 2020 and May 2023, without proper guidance to employees concerning the structure and sale of the bonds. It says BMO also didn’t have a process to review what kind of information representatives shared with customers about the bonds.
After a major U.S. investigation, TD admitted it failed to stop criminals from using its branches to launder money. The Canadian-owned bank is one of several under investigation by the U.S. government and financial regulators.
“It is critical that firms have supervisory processes that are customized to their business units,” said Sanjay Wadhwa, acting director of the SEC’s division of enforcement, in a statement.
While BMO agreed to pay $19.4 million US in disgorgement, $2.2 million US in interest and a $19-million US civil penalty, it did not admit or deny the SEC’s findings.
BMO spokesman Jeff Roman said the bank is pleased to have the matter behind it.
“We hold ourselves to the highest standards of fair and ethical conduct, and continuously review and enhance our controls and supervisory framework,” he said in a statement.
Billions in fines
The penalty is the latest example of U.S. regulators levelling substantial fines against Canadian banks, with the most notable being the more than $3 billion US that TD Bank Group paid last year for anti-money laundering oversight failures.
The U.S. Consumer Financial Protection Bureau also fined TD $28 US million last year for allegedly providing inaccurate, negative credit information to credit agencies.
RBC’s City National division also got hit with a $65-million US fine last year by the U.S. Office of the Comptroller of the Currency, related to alleged systemic deficiencies in the bank’s risk management and internal controls.
Canadian banks have also been swept up in the billions of dollars in fines regulators imposed last year over failures to keep communications records, often because of the use of third-party messaging platforms like WhatsApp.
The size of the fines against Canadian banks in the U.S. has…
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