Pub. 1 2012 Issue 3

April/May 2012 17 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s If the person signing is John Smith, but he is opening the account by impersonating a different John Smith, he does not have authority to sign that account opening document. By using the Signature Validation Stamp on the document, the bank has agreed to be liable to the broker, possibly for every dollar which goes through the account. Indemnity Agreements should always be viewed skeptically and should only be signed after much thought about their ramifications. This particular Indemnity Agreement is creating, by contract, a significant, possibly huge, new liability for banks. For security type documents where a signature guarantee is required, a bank can determine the value of the security and use more caution when large dollars are involved. For non- security documents upon which the new Signature Validation Stamp may be used, a bank cannot even guess the amount of the bank’s exposure or know whom the bank may later have to indemnify. Abank may be asked to put a Signature Validation Stamp on a type of document that the bank officer does not understand and could not possibly determine whether the signer had actual authority to sign that document. You might be swayed into joining the program because, for a small fee, a bank can, or must, purchase a Surety Bond for the Signature Validation Program. The Surety Bond protects only the persons who rely upon your Signature Validation Stamp. The Surety Bond is not insurance to protect the bank. The bank agrees in the same SVP Indemnification Agreement to indemnify and hold harmless the surety company if anyone makes claim under the Surety Bond. The surety company’s only risk is when someone makes claim under the surety bond and the bank is insolvent or otherwise cannot repay the surety company. There is no insurance to protect a bank for its loss which could result from the liability the bank agreed to take on by signing the SVP Indemnification Agreement. This Signature Validation Program is clearly a program which adds new liability for banks under the SVP Indemnity Agreement. I also investigated the requirements relating to U.S. Savings Bonds to see if the government was requiring banks to join the Signature Validation Program. The government does not require any bank to join the SVP program. Federal regulations regarding U.S. Savings Bonds, specifically, 31 CFR 353.55, require that signatures on certain documents be certified by a Certifying Officer. Bank officers may act as Certifying Officers. The regulations require the Certifying Officer to establish the identity of the signer in accordance with the “Treasury instructions and identifica - tion guidelines” and place a notation on the back of the document, or in a separate record, showing how identification was established. So the first thing a banker will need to do before acting as a Certifying Officer is to learn and follow the “Treasury instructions and identification guidelines” and then properly record how identification was established. The regulation also requires the Certifying Officer to “Affix, as part of the certification, his or her official signature, title, seal or issuing agent’s stamp, address and date of execution.” While a seal or stamp must be used, the regulation itself does not require anything called a “Signature Validation Stamp.” The forms them- selves only refer to a stamp or a corporate seal. Therefore, the bank’s corporate seal can be used if the bank does not want to create a special stamp for the Certifying Officer to use for this purpose. Clearly the bank is not required by TreasuryDirect to join the Signature Validation Program and use a special SignatureValidation Stamp. If the bank uses the Signature Validation Stamp, the bank is subjecting itself to potential “This Signature Validation Program is clearly a program which adds new liability for banks under the SVP Indemnity Agreement.” “Banks should be very wary of allowing the Signature Validation Program to grow because it creates a substantial new risk to banks.” continued on next page