HSBC Private Bank appeals against record HK$605 million fine by SFC

Record-high penalty was for alleged misselling of Lehman Brothers products

PUBLISHED : Thursday, 05 May, 2016, 3:11pm
UPDATED : Friday, 06 May, 2016, 4:25pm

HSBC Private Bank (Suisse SA) has appealed against a record HK$605 million fine and the revocation of its advisory licence by the Securities and Futures Commission (SFC) over alleged misconduct related to the sale of Lehman Brothers-related structured products and some other forward accumulators between 2003 and 2008.

The hearing started on Wednesday and will last until at least May 12. It is being heard by Mr Justice Michael Hartmann, chairman of the Securities and Futures Appeals Tribunal. It follows a disciplinary decision by the SFC regarding the private banking arm of HSBC, the biggest lender in Hong Kong and Europe.

The HK$605 million fine is the largest ever imposed by the SFC on any broker or investment bank.

The SFC issued a statement in October saying HSBC Private Bank had applied to appeal against its decision.

In the statement, the SFC said the disciplinary action “concerns the bank’s internal controls and sales practices in connection with its sale of structured products – namely, Lehman Brothers-related notes and leveraged forward accumulators between 2003 and 2008”.

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Former SFC chairman Anthony Neoh, the lawyer representing HSBC Private Bank, told the tribunal on Thursday that the penalty was excessive.

Besides the record-high fine, the SFC penalty also revoked the lender’s licence to advise on securities. HSBC Private Bank now has two licences from the SFC, include a type 1 licence for dealing in securities and a type 4 licence to advise on securities-related business.

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During the hearing, Neoh said private bank clients were different from retail customers because private bank clients usually had more assets with the bank.

Lehman Brothers, the US investment bank, collapsed in 2008. That led to the derivative products linked to the bank becoming worthless and investors suffering losses.