SFC fines Merrill Lynch over index-linked notes
The Securities and Futures Commission (SFC) has reprimanded Merrill Lynch (Asia Pacific) and fined it HK$3 million for inadequate systems in relation to the sale of two index-linked notes to 72 clients in 2007.
The decision follows an investigation in which the SFC raised concerns that the US investment bank failed to assess properly the financial situation and investment objectives of more than 40 of the 72 customers who invested in the notes.
The SFC was also concerned that key product information was provided to clients only after they had agreed to invest in the index-linked notes, and that Merrill Lynch kept inadequate documentation to explain the rationale behind the advice they had given to their customers.
Merrill Lynch has agreed to implement a resolution scheme in which it will repurchase the outstanding index-linked notes within 30 days of receiving valid acceptance forms from customers, at 100 per cent of the principal amount invested. The value of the repurchase offers is expected to be US$3,674,405.
In addition, Merrill Lynch has agreed to offer top-up payments to customers who bought the index-linked notes through Merrill Lynch and redeemed them for less than their principal investment.
It will also implement Enhanced Complaint-Handling Procedures (ECHP) to review client complaints regarding its distribution, sale, and provision of investment advice in relation to unlisted structured products other than the two index-lined notes.
The firm will also engage an independent audit firm to conduct a review of its systems and controls.
The SFC has acknowledged Merrill Lynch's full co-operation and notes that it has begun its own review of internal systems and controls.
