Two Bank of Montreal Units to Pay $38M to Settle SEC Charges

Two advisory units of Bank of Montreal BMO will pay a civil fine of $8.25 million along with $29.73 million of disgorgement and interest for failing to disclose conflicts of interest by not informing clients that their money was often being invested in proprietary funds and costlier share classes, says the U.S. Securities and Exchange Commission (SEC).

SEC recently announced, that the Chicago-based units, BMO Harris Financial Advisors and BMO Asset Management, have agreed to pay a penalty of nearly $38 million for overcharging clients.

According to the report on Yahoo, between July 2012 and March 2016, these divisionsunduly invested nearly 50% of client’s assets in their retail Managed Asset Allocation Program in proprietary mutual funds without letting the clients know about these investments. By doing this, BMO Asset Management was able to create higher management fees at the cost of clients. BMO Harris Financial Advisors also frequently invested clients’ assets from the program in more costly share classes, even when they could be invested in lower-cost share classes, resulting in lower returns for clients.

Speaking on the issue, co-chief of the SEC enforcement division's asset management unit, C. Dabney O'Riordan, quoted on yahoo said, “BMO advisers repeatedly put their own financial interests ahead of clients.”

A spokeswoman for Bank of Montreal says the bank is happy to see that the matter has been resolved, “We are pleased to have resolved this matter with the SEC. We have enhanced our conflict of interest disclosures and processes for identifying and addressing conflicts. We have a strong culture of compliance and a robust control framework that fully meets legal and regulatory requirements.”

In spite of this negative development, shares of Bank of Montreal have increased 12.9% so far this year, outdoing 2.8% growth recorded by the industry.

Incidents such as this,demonstrate that customers who make investments in financial houses must be vigilant at all times to know when they are being cheated, as banks are not always 100% error-free.

In 2018, Reuters had reported that Citibank had found that a computer error led to some accounts missing out on a lower rate.Credit card customers who kept up with their payments with the bank were supposed to be entitled to a lower interest rate, but the bank’s computers failed to apply this.

The Consumer Financial Protection Bureau (CFPB), a leading regulator for Wall Street, had then decided that the bank deserved credit for finding the problem itself and flagging it to the agency. So it did not fine Citibank.

However, in another similar incident in 2015, the CFPB fined Citibank and its subsidiaries $35 million and forced the bank to refund $700 million after finding that the bank pushed customers into unwanted credit card services.

Maybe the time has come for regulatory bodies to do more than just impose a fine to financial institutions caught mismanaging customers' funds. Imposing stricter penaltiescould discourage banks from being careless with consumer accounts.


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