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What’s a Medallion Guarantee and Why Is It So Hard to Get?

By Harry S. Margolis

If you have tried to sell or transfer any securities recently you may have run into the hurdle of obtaining a medallion guarantee of your signatures. Most brokerage firms are requiring these to make sure that it’s really you who is asking for the trade.

The problem is that you must appear in person to obtain the guarantee and that fewer and fewer institutions are willing to provide it, especially to non-customers.

While a notary certifies that you are who you say you are when you execute a legal document, the medallion guarantee goes significantly further. The medallion guarantor certifies not only that it’s you signing the document but also that you have both the authority and capacity to do so. Further, as a guarantor, they are agreeing to take on liability if it turns out they’re wrong on any of these factors.

This becomes especially difficult where the person asking for the medallion guarantee is acting under a durable power of attorney. The bank or other insitution providing the guarantee must ascertain that the agent has authority under the power of attorney to carry out the intended transaction. This is a legal determination that may be beyond the training of frontline bank personnel, meaning that it will be referred to their legal department, resulting in extra delays and costs.

At least one commentator has asked why any bank would provide this service, especially to non-customers. Increasingly, banks and brokerage firms offer exclusively or primarily on-line services. When they require a medallion guarantee they are asking their competitors with brick and mortar storefronts to provide them with a service at a cost only to the competitor. They may begin charging for this service or denying it completely to non-customers.

The only option for consumers may be to do their brokerage business through companies that permit them to walk into their offices.

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