Compensation in Lehman cases dwarfs potential fines for misconduct

PUBLISHED : Thursday, 07 July, 2011, 12:00am
UPDATED : Thursday, 07 July, 2011, 12:00am

I refer to Glenn Turner's letter asking whether the Securities and Futures Commission (SFC) can explain why the banks which sold Lehman products were not fined ('Banks, too, should be penalised', July 2).

While it would be good to be able to levy fines and obtain compensation for investors affected by misconduct, the law does not enable the SFC to do both and we can only secure compensation by agreement.

In effect, compensation may stand in lieu of disciplinary penalties as an efficient way to expiate the consequences of misconduct.

While we would never accept offers of compensation in lieu of criminal misconduct, it is reasonable for compensation to expiate regulatory concerns where the offer will provide substantial mitigation for the consequences of regulatory misconduct.

In the wake of Lehman Brothers' collapse, we set out a regulatory strategy taking into account our regulatory concerns, the limits of our fining power, the need for remediation and the interests of the investing public.

We have applied this strategy in our dealings with banks and brokers alike.

Since January 2009, the SFC has resolved cases with 20 banks and five brokers over issues arising from the sale of Lehman products.

In all but one case (the one mentioned by Mr Turner), we have secured substantial remediation in lieu of regulatory fines, producing outcomes for investors valued at well over HK$8billion for more than 34,000 investors, nearly all of whom have received back at least 80 per cent of their principal which was otherwise lost in the collapse of Lehman Brothers.

The amount of compensation in these cases dwarfs any potential or prospective fines which might have been imposed. The remediation package also includes practical measures to be undertaken by each intermediary to forestall problems in the future.

These outcomes have produced far more timely and positive outcomes than might result from smaller fines, making investors the direct beneficiaries of regulatory action. They have undoubtedly been in the public interest.

Mark Steward, executive director of enforcement, SFC

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