Hong Kong banks will have to separate traditional activities such as deposit taking from retail securities business by the end of September. But they have the option of allowing the same staff to assess the risk profiles of customers and sell investment products if safeguards are in place, according to the Hong Kong Association of Banks. Peter Wong Tung-shun, chairman of the body, said: 'I can't say incidents like the Lehman minibonds issue can be avoided completely, but such cases could be minimised substantially.' He said the association had reached agreement with the Hong Kong Monetary Authority (HKMA) on the 'physical segregation'. This measure was one of a series of proposals suggested in separate reports by the HKMA and the Securities and Futures Commission on last year's Lehman Brothers-linked minibonds sales fiasco. Minibonds are not corporate bonds but consist of high-risk credit-linked derivatives. They are marketed as a proxy investment in well-known companies. The banks have until June 30 to install audio systems to record clients' conversations on investment products, and the recordings must be kept for seven years. On segregating risk analysis and the sale of products, banks can follow the suggestion of the HKMA that these functions be performed by separate staff members. But they have the option of allowing the same person to be involved in both activities if proper safeguards are in place. Choi Yiu-kwan, a deputy chief executive of the HKMA, said such flexibility was necessary because some banks with small branches might have difficulty in splitting staff. Mr Wong said cross-checking of risk analysis was required if bank staff performed both functions. An independent staff member would listen to tapes concerned with risk analysis, particularly for elderly customers, those with low education levels, and those without investment experience, to ensure the analysis was fair. Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products, said the changes were superficial and would do nothing to change the mentality of bank staff in managerial and frontline positions. 'What is important is to improve their attitude to carry out 'due diligence' as required ... one of the lessons drawn from the Lehman saga is a blatant lack of due diligence on the part of the distributors,' Mr Chan said. He said it was more important for the regulator to ensure product suitability. 'If they are serious about improvements, both the regulators and the distributors should change their mentality and put their hearts in the right place,' he said. Billy Mak Sui-choi, an associate professor in the department of finance and decision science at Baptist University, said the measures were acceptable since people could refer to the recording if there was any argument about mis-selling. Mr Wong expected bank costs to rise as a result but he said it was too early to predict whether they would pass on the costs to customers.