Signature Guarantee

A signature guarantee is a form of authentication, issued by a bank or other financial institution, which verifies the legitimacy of a signature and the signatory's overall request. This type of guarantee is often used in situations where financial instruments are being transferred.

In most cases, the guarantor accepts all consequences in the event that the signature is fraudulent.

With the number of crimes related to identity theft rising each year, using a signature guarantee service is a great way to prevent others from capitalizing on your identity. (Identity theft is the crime of obtaining the personal or financial information of another person for the sole purpose of assuming that person's name or identity to make transactions or purchases.)

In order to provide some sort of signature guarantee, a financial institution must be a member of a recognized securities guarantee program, such as Medallion.

Three Medallion programs include: STAMP (the Securities Transfer Agents Medallion Program), SEMP (the Stock Exchange Medallion Program), and MSP (the New York Stock Exchange Medallion Signature Program). STAMP participants include more than 7,000 U.S. and Canadian financial institutions; SEMP consists of regional stock exchange member firms, along with clearing and trust companies; and NYSE member firms belong to MSP.

Membership with the Medallion program ensures that transfer agents will immediately accept certificates for processing.

Many must sign physical securities certificates prior to selling them. Before a transfer agent accepts the certificates, however, they might require a signature guarantee to make sure they’re not forged. Signature guarantees limit the liabilities of losses to the transfer agent. One means of avoiding a signature guarantee is to have securities held in street name. This means that the securities are held in the name of a brokerage firm (instead of an individual’s name).

While increasingly widespread, identity theft can still be prevented. Regularly checking personal accounts and quickly correcting discrepancies can help mitigate the effects of a breach. Choosing multi-factor authentication when logging into sensitive apps is also helpful. Multi-factor authentication relies on something more than simply a password to access an account. For example, the Google Authenticator requests the use of a time-sensitive six-digit code. (This is sent to a user’s phone.) Using a password manager for online banking accounts can also add another layer of protection.