Securities watchdog to investigate banks on mis-selling derivatives; Legco to hold inquiry The Monetary Authority has found 24 complaints of mis-selling of minibonds by two banks sufficiently serious to pass them to the securities watchdog for investigation, marking a new stage in probes of banks' sale of the investments. At the same time, the Legislative Council yesterday set up a subcommittee to look into the minibonds saga - and the regulation of high-risk investment products. The moves came as banks in the city agreed to buy back the minibonds at current market prices. Dah Sing Bank confirmed last night that it is one of two banks under investigation. A spokesman said the bank would co-operate fully and 'make appropriate compensation' if any case of mis-selling was found. The HKMA has so far received 12,091 complaints concerning derivatives linked to bankrupt US investment bank Lehman Brothers. Apart from the 24 cases referred to the SFC, it has opened investigations on a further 95 complaints and is seeking more information on 783 others. SFC chief executive Martin Wheatley said: 'The SFC will adopt a systemic top-down approach to ensure that allegations of mis-selling of minibonds are investigated efficiently, effectively and expediently. 'Since a single selling organisation is often the subject of multiple allegations, the SFC will examine whether the evidence exposes any systemic weakness in management controls.' Mr Wheatley said the SFC would also review whether supervision of the sale of so-called structured financial products had been working properly or needed changes. He also expected banks and brokers to launch their own investigations. The SFC - which has the power to impose penalties including public reprimands, fines and licence suspension - said it would complete the investigation as soon as possible. 'We want to, as quickly as possible, get to the bottom of these issues and make sure people who are suffering losses can get justice where they have been mis-sold,' Mr Wheatley said. The subcommittee set up yesterday by the Legco House Committee will look into the authorities' regulatory framework and mechanisms for investigating the sale of minibonds and other complex derivatives. The subcommittee was granted initial approval to exercise Legco's special legal powers to demand documents and summon witnesses from the authorities and the banks, after the surprise abstention of 19 government-friendly lawmakers. It is the first time such powers have been extended to a subcommittee but their use must still be confirmed by a full meeting of Legco. Those who abstained from voting on the Democratic Party proposal included legislators from the Democratic Alliance for the Betterment and Progress of Hong Kong and the Liberal Party. A week ago, they rejected another Democrat proposal to set up a select committee on the minibonds. Lawmakers attending a special financial services panel meeting on the policy address last night were already pointing the finger of blame at the financial regulators, saying they should take responsibility for the minibonds saga. 'This first person who should step down is Martin Wheatley,' Democrat legislator Lee Wing-tat said, adding that high-risk derivatives should not be allowed to be called 'minibonds' as this was misrepresentation. About 43,700 investors bought HK$15.7 billion of minibonds and similar derivatives issued or guaranteed by Lehman Brothers. Many minibonds retail investors, who claim banks mis-sold them as low-risk investments, said they welcomed the investigations. Mandy Lee, whose 67-year-old mother invested HK$1.5 million in minibonds, said her family would refuse any buyback at less than 80 per cent of the purchase price. Ms Lee said the family's next course of action depended on the investigation results. 'We'll wait and see what the investigations find out.' Li Pang-kwong of Lingnan University's public governance programme said: 'It's good to have different bodies launching investigations ... which will look at the matter multidimensionally.' He said the HKMA and SFC would focus on whether anyone had violated regulations, while Legco would look into areas of public concern and who should be blamed.