The goal of Bullion Custodial Services Inc. (BCS) is full transparency with respect to the processes used to assign individual bullion bars to their owners, while at the same time maintaining client confidentiality.
In order to confirm ownership of specific bullion bars, BCS ensures that all clients have evidence of title that identifies each bar by refiner, exact weight, fineness and serial number. All bullion sold under the BMG BullionBars program meets the London Bullion Market Association’s Good Delivery Standards.
These are the steps BCS follows during the purchase process:
- All trades are authorized by a trade confirmation, which is emailed to the BMG BullionBars Authorized Dealer.
- After 48 hours, an order reconciliation report is emailed to the BMG BullionBars Authorized Dealer, confirming the exact number of ounces in, and purity of, each bar purchased.
- BCS then creates and issues a BullionDeed for each bar purchased, which confirms the full and unencumbered ownership of each bar registered in the client’s name. An original is delivered directly to the client within five working days, and BMG keeps a scanned copy of the original on our secure server.
Bullion Deed Confirmation
Every BullionDeed provided by BCS to the client contains the following information:
- Bar Serial No.—the number stamped onto each bar by the refiner
- Bar Refiner—the code for the refiner of the bar
- Bar Metal—gold, silver or platinum
- Fine Ounces—ounces of the precious metal in each bar
- Fineness—the purity of the precious metal
- Deed Issue Date—this should match the date on each Deed
- Deed Serial Number—unique serial number on each Deed, as printed by the Canadian Bank Note Company
- Deed Number—created by BCS to give further unique identification to individual bars
To ensure full transparency, there are two reports published for the client’s review on this website.
First, bullion bars purchased through the BMG BullionBars program are stored on an allocated and insured basis with the Bank of Nova Scotia in Toronto, Canada. Each month, Scotia sends a list of the serial numbers of all bars in storage, confirming the physical bullion holdings being held with the Scotia on behalf of BCS clients.
Download ScotiaMocatta BMG BullionBars list.
Second, the above BullionDeed information is also recorded on the Deed Serial Number Confirmation Report.
Finally, there is a Deed Serial Number. This number is guaranteed unique by the Canadian Bank Note Company (see the letter from the Security Products Manager at Canadian Bank Note Company here).
By crosschecking this unique number and the Bar Serial Number on a particular Bullion Deed against the confirmation report, clients can have absolute certainty with respect to the ownership of their bars.
Unallocated Storage
An area of significant concern to bullion purchasers is that many precious metals products are traded as precious metals proxies in the form of ETFs, certificates and pooled accounts, and are held in unallocated storage accounts. Clients do not actually own any bullion, but rather hold a promise from the issuer to deliver bullion or settle at prevailing future prices. Bullion held in this manner forms part of the working capital of the financial institution in the same way as traditional currency bank accounts. However, bullion owners with unallocated storage are not protected by the depositor insurance that covers regular bank accounts. There is no regulatory requirement for these accounts to be fully backed by physical metal and, even if fully backed, the bullion is considered part of the institution’s assets. In the event of insolvency, those assets form part of the overall creditors’ pool, and allocated to general creditors in their respective priority. Often the bank or dealer will hedge their exposure by purchasing futures contracts during rising markets and close out the positions during falling markets. Loans, options, swaps and leases are other mechanisms that can be used to cover these positions. As a result, those with bullion in unallocated storage take the risk that their bullion may be leased out without their knowledge or consent, or that the implied bullion may not be there at all. Precious metals held in unallocated storage accounts do not entitle the holder to specific bars, and the holder only ranks as an unsecured creditor of the dealer or bank in the event of an insolvency or bankruptcy.
Allocated Storage
Once title to specific bars is transferred to the client, storage arrangements need careful consideration. Clients of BMG can take comfort in knowing that we offer allocated and insured bullion storage for owners who have full legal ownership of specific bullion bars.
Without full legal ownership and title documentation, bars cannot be held on an allocated basis. Instead, they are considered unallocated, and legally form part of the assets of the dealer or bank. Allocated bars may not be lent into the market as part of the custodian’s general pool of metal. Also, allocated bars are not subject to any third-party claims of the custodian or bank, and they do not form part of the custodian’s assets in the event of bankruptcy or insolvency.
Bars held under an allocated and insured custodial storage arrangement are neither the property nor the liability of the bank or dealer. Custodial agreements must be in writing, must be executed by both the custodian and the owner and must set out all of the terms of the agreement, including storage fees and insurance, and they must specifically identify each bar.
Should you have any questions about this security arrangement, please contact Marty Nicandro, VP Dealer Relations, at 905.474.1001 (Canada); toll free at 1.888.474.1001 ext 2958; or contact your BMG BullionBars Authorized Dealer.
