The Ontario Securities Commission (OSC) has approved a no-contest settlement agreement with BMO Nesbitt Burns Inc. (BMO NB), BMO Private Investment Counsel Inc. (BPIC), BMO Investments Inc. and BMO InvestorLine Inc. (BMO IL)–together, referred to as the BMO Registrants–in relation to a matter that the BMO Registrants discovered and self-reported to the OSC.
This settlement follows allegations by OSC Staff that there were inadequacies in the BMO Registrants’ systems of controls and supervision, which resulted in certain clients paying, directly or indirectly, excess fees that were not detected or corrected in a timely manner.
OSC Staff do not allege, and have found no evidence of dishonest conduct by the BMO Registrants.
While having neither admitted nor denied the accuracy of the facts and conclusions of OSC Staff, the BMO Registrants have agreed to the settlement, and intend to compensate clients a total of $49.9 million, including opportunity costs on fees.
The settlement agreement says “upon identification of the issue described above, BMO NB took steps to determine the extent of the problem and how to compensate affected clients. BMO NB retained an independent third party to validate BMO NB’s identification of the affected clients, the methodology BMO NB used to calculate the compensation amounts to be paid to the affected clients and the results of those calculations for the excess Account Fees charged. Having taken the steps described above, BMO NB self-reported this Control and Supervision Inadequacy to Commission Staff.”
It adds, “BMO NB has determined that, as a result of this Control and Supervision Inadequacy, approximately 39,613 client accounts were charged excess Account Fees during the period January 1, 2008 to April 30, 2016.”
The settlement adds that, on top of those BMO NB client accounts, “BPIC has determined that, as a result of this Control and Supervision Inadequacy, approximately 6,519 client accounts were charged excess Account Fees during the period January 1, 2008 to June 30, 2016.”
And, “BMO IL has determined that, as a result of this Control and Supervision Inadequacy, approximately 176 client accounts were charged excess Account Fees during the period September 10, 2012 to March 31, 2016.”
In addition to the compensation to investors, the BMO Registrants have made a payment of $2.1 million to advance the OSC’s mandate of protecting investors, plus a further payment of $90,000 to be allocated toward the costs of OSC Staff’s investigation.
After reporting this matter, the BMO Registrants provided prompt, detailed and candid co-operation to OSC Staff. The BMO Registrants have also implemented additional controls and supervision to prevent a re-occurrence of this matter.
OSC says, “The no-contest settlement [tool] is a strong enforcement tool that has resulted in more than a quarter of a billion dollars (approximately $320 million) in compensation to investors, through seven no-contest settlements,” says Jeff Kehoe, Director of Enforcement at the OSC.
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