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Hong Kong Monetary Authority (HKMA)

SocGen to repay record US$11 million to investors

PUBLISHED : Wednesday, 18 July, 2012, 12:00am
UPDATED : Wednesday, 18 July, 2012, 12:00am

The securities watchdog has reprimanded Societe Generale and asked it to pay back more than US$11 million to investors for overcharging them - the largest reimbursement of its kind in Hong Kong.

The Securities and Futures Commission said the French investment bank failed in its internal controls at its Hong Kong branch and had not disclosed to clients certain fees and charges for its over-the-counter (OTC) trades - where two parties make direct trades rather than via an exchange - in bonds, options and structured notes from 2003 to 2006.

Societe Generale has agreed to reimburse affected customers the full value of the excess fee plus interest, which will amount to more than US$11 million.

The Hong Kong Monetary Authority first encountered problems at the bank during an on-site inspection and in a complaint against Societe Generale. It referred the case to the SFC for further investigation.

The SFC found that in 3,000 OTC transactions Societe Generale conducted for clients between April 2003 and January 2006, customers paid or received prices that were different from the actual trading prices. Societe Generale kept the differences as fees, which the SFC said were 'variable and, in some cases, excessive'. The bank told the SFC it changed its practice from February 2006.

'These fees should not have been charged or taken without clear agreements and disclosure. Societe Generale is doing the right thing now in reimbursing its customers,' said Mark Steward, executive director of enforcement with the SFC.

The SFC said Societe Generale's internal controls had failed to ensure customers were fairly treated in transacting OTC products. The bank has agreed to have independent reviewers assess the amount to repay customers and improve its internal control system.

Societe Generale is the latest international bank to face regulators' action. Barclays, the second-biggest British bank, agreed last month to pay GBP290 million (HK$3.5 billion) in regulatory fines for rigging the London interbank offered rate (Libor).

Societe Generale last month made headlines in France when rogue trader Jerome Kerviel began his fight against a 2010 conviction for a Euro4.9 billion (HK$46.4 billion) trading loss in 2008. Kerviel told a Paris appeals court that the bank knew what he was doing. Kerviel, now 35, was sentenced to three years' jail after he amassed Euro50 billion in unauthorised positions that were concealed with fake hedges.