HSBC fined record $69m over Lehman-linked sales

HONG KONG • HSBC Holdings' private-banking unit was fined a record HK$400 million (S$69.2 million) over sales of structured products linked to Lehman Brothers Holdings in Hong Kong.

HSBC Private Bank (Suisse) will have its licence to advise on securities suspended for a year, while its dealing licence will be partially suspended, the Securities and Futures Appeals Tribunal said in a ruling on Tuesday, as it upheld previous findings by the Securities and Futures Commission (SFC).

HSBC said the suspensions will not affect private-banking operations in Hong Kong.

The SFC had originally imposed a HK$605 million fine, penalising the private bank for alleged failures of its internal controls and sales practices in relation to the sale of Lehman notes and products in the five years leading up to the bank's bankruptcy in 2008.

The subsequent collapse of the Lehman investment products sold to individuals roiled Hong Kong, causing street protests and prompting banks to overhaul sales procedures.

"The bank's failings were serious; they were systemic in nature, extended over a relatively lengthy period of time, and not only put clients at risk but (also) caused loss to many," the tribunal said in its ruling. "Against that, however, it has to be recognised that the bank's failings were not shown to be dishonest, they were not shown to be intentional or reckless."

HSBC Private Bank (Suisse) will have its licence to advise on securities suspended for a year, while its dealing licence will be partially suspended, the Securities and Futures Appeals Tribunal said in a ruling on Tuesday, as it upheld previous findings by the Securities and Futures Commission.

HSBC's private-banking business in Hong Kong no longer operates as HSBC Private Bank (Suisse), the responsible legal entity between 2003 and 2008, according to a statement from spokesman Gareth Hewett.

The business now operates under the Hongkong and Shanghai Banking Corp, a legal transfer that was completed in 2013 "to simplify governance requirements and administrative processes", he said.

"HSBC Private Bank (Suisse)'s systems and controls for selling structured products fell significantly short of the standards expected of them," SFC chief executive Ashley Alder said in an e-mailed statement. "In combination with flawed practices and intrinsically high-risk products, the bank's failures magnified the risk and occurrence of significant losses for customers."

HSBC's lawyer had said the original HK$605 million penalty was excessive, and that the SFC had wrongly applied "retail standards" to a private bank, when it is a different type of business, with a particular relationship with its clients.

The result is the latest episode in an almost decade-long saga involving Lehman products, which saw thousands of individual investors lose money on notes linked to the investment bank. The losses resulted in hundreds of millions of dollars in settlements paid out by banks that had sold the products.

The SFC subsequently moved to strengthen protections for retail investors. HSBC is among global lenders that have been battered by billions of dollars in fines for misconduct since the global financial crisis.

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A version of this article appeared in the print edition of The Straits Times on November 23, 2017, with the headline 'HSBC fined record $69m over Lehman-linked sales'. Print Edition | Subscribe