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Screenshot of a breaking news alert e-mail from Q2 2017
HSBC Private Bank (Suisse) SA, the Hong Kong branch of the Switzerland-based private banking business of HSBC Group, has been fined a record sum of HK$400 million after the Securities and Futures Appeals Tribunal (SFAT) upheld the Hong Kong SFC’s disciplinary action against the bank for material systemic failures in relation to the sale of derivative products – namely, Lehman Brothers-related Notes (LB-Notes) and Leveraged Forward Accumulators (FAs) – in the run-up to the global financial crisis in 2008.
HSBC Private Bank (Suisse) SA’s registration for Type 4 regulated activity (advising on securities) has been suspended for a period of one year and its registration for Type 1 regulated activity (dealing in securities) has also been partially suspended under the Securities and Futures Ordinance (SFO) for a period of one year.
The SFAT said in its determination that the SFC was correct in its findings and concluded that the bank was culpable of material systemic failings in its marketing and sale of derivative products by falling short of the standards set out in the SFC Code of Conduct and ancillary guidelines. The bank’s culpability was “extensive, putting many clients at unnecessary risk of loss and indeed resulting in substantial losses for many,” it added.
Between January 2003 and December 2008, HSBC Private Bank (Suisse) SA’s internal processes were found to be materially flawed in:
- understanding each client’s true risk profile;
- ensuring the suitability of products for each client; and
- supervising and monitoring sales processes in order to detect and avoid risk mismatch.
The SFAT is of the view that a fine of HK$400 million is appropriate and recognises that “it is also exemplary in that for the greater protection of the integrity of Hong Kong’s financial markets, it provides a stern warning that principles of professional conduct must be adhered to”.
Put another way, that – in future – penalties imposed for convenient avoidance of the requirements of the Code of Conduct will constitute something more severe than the mere ‘cost of doing business’,” the SFAT added.
Mr Ashley Alder, the SFC’s Chief Executive Officer, said:
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.
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,” he added.
The complete announcement can be seen here.