Hong Kong Fines HSBC $51m, Revokes License for Selling Lehman-Related Notes

The fine is the largest ever imposed by the SFC.

The Securities and Futures Commission (SFC), Hong Kong’s paramount securities regulator, today fined HSBC Holdings Plc’s private-banking unit HK$400 million ($51 million) for engaging in selling Lehman Brothers-related notes between 2003 to 2008.

The fine is the largest ever imposed by the SFC. HSBC, the biggest lender in Hong Kong and Europe, previously launched an appeal arguing that the penalty was excessive. The watchdog has also announced a temporary revocation of HSBC’s licenses to advise and deal on securities-related business (Type 4 and Type 1 respectively) for a period of one year.

According to the Securities and Futures Appeals Tribunal’s ruling, there were failings in HSBC’s KYC procedures, in which private clients did not fully understand the risks of the investment products that the bank offered.

In the statement, the SFC said that the disciplinary action concerns HSBC Private Bank (Suisse) SA’s internal controls and sales practices in connection with its sale of structured products – namely, Lehman Brothers-related notes and leveraged forward accumulators between 2003 and 2008.

“The bank’s culpability was extensive, putting many clients at unnecessary risk of loss and indeed resulting in substantial losses for many,” the SFC expianed.

Lehman Brothers was a giant US investment bank but collapsed in the run-up to the global financial crisis in 2008. That led to the derivative products linked to Lehman Brothers becoming worthless and HSBC’s customers suffering losses.

Ashley Alder, the SFC’s Chief Executive Officer, commented: “HSBC Private Bank (Suisse) SA’s systems and controls for selling structured products fell significantly short of the standards expected of them. In combination with flawed practices and intrinsically high risk products, the bank’s failures magnified the risk and occurrence of significant losses for customers. Accordingly, we have decided very substantial sanctions are required.”

He added: “The message should be clear: our standards are designed to protect all investors including clients of retail or private banks.  When breaches of these standards occur, the SFC will take action to enforce them and strive to achieve outcomes that are in the interest of the investing public.”

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