Posted inRegulation

HSBC PB appeals record SFC fine

In a misconduct case more than a decade old, HSBC Private Bank has launched an appeal against a record HK$605m regulatory fine ($78m) and the possible revocation of its license to advise on securities.

The case concerns a unit of HSBC Holdings, HSBC Private Bank (Suisse) SA and the private bank’s internal controls and sales practices for selling Lehman Brothers-related notes and “leveraged forward accumulators” between 2003 to 2008, according to local media reports.

Details of the case were not made public before, and were first revealed at the hearing at the Securities and Futures Appeals Tribunal on Wednesday. The hearing is expected to run through next week.

There were failings in HSBC’s know-your-client (KYC) procedures, in which customers did not fully understand the risks of the investment products, according to Ming Pao Daily.

Anthony Neoh, the bank’s senior counsel and former SFC chairman, argued at the hearing that the penalty was excessive, according to WSJ and Bloomberg reports.

The risk appetite of private banking clients is higher than those of retail customers, he explained, and the investment tools are considered traditional “vanilla-type” structured products. He said the SFC should not consider the private bank as it would a retail bank.

One of the products, equity–linked notes (ELN), can have the contracts cancelled any time, and there were no reasons at that time to refuse selling Lehman Brothers products, he said, according to reports.

HSBC Private Bank holds type 1 and type 4 licenses in Hong Kong to operate business for dealing and advising on securities respectively.

The fine is the largest imposed by the Securities and Futures Commission.

Part of the Mark Allen Group.