Hong Kong’s SFC fines HSBC arm US$1.2 million for misconduct in bond sales

HSBC Broking Securities has failed to conduct sufficient due diligence on bond products before recommending to customers in 2015 and 2016

PUBLISHED : Thursday, 19 July, 2018, 6:40pm
UPDATED : Friday, 20 July, 2018, 4:53pm

Hong Kong’s Securities and Futures Commission has fined HSBC Broking Securities (Asia) HK$9.6 million (US$1.22 million) for misconduct in the firm’s sale of bonds in 2015 and 2016.

The securities arm of HSBC, the largest bank in Hong Kong and in Europe, is the latest financial institution penalised by the SFC, which has vowed to clear up malpractices in the market.

According to the regulator’s investigation, it found that HSBC Broking Securities had failed to conduct sufficient due diligence on certain individual bonds listed on the Hong Kong stock exchange before recommending them to customers between April 2015 and March 2016.

During the period, HSBC Broking Securities executed 378 transactions of bonds listed on the stock exchange and made 153 recommendations to its clients.

Hong Kong regulator fines Citigroup US$509,660 for dark pool compliance failure

The SFC reprimanded HSBC for not having an effective system in place to assess its clients’ risk profiles and ensure that the bond products recommended were suitable.

The bank also failed to provide adequate product information for its sales staff to fully understand the features and the risks involved so that they could provide adequate disclosure and explanation to clients during the sale process, the SFC said in a statement on Thursday.

In deciding the disciplinary sanctions, the SFC took into account that HSBC Broking, despite the regulator’s repeated calls for all brokers and banks to comply with the rules, had not put up a system to ensure the right bond products were sold to clients.

This was particularly important for the sales of high-yield bond products, the SFC said.

“A strong message has to be sent to the market to deter similar misconduct,” it said.

The SFC said HSBC had taken measures to enhance its suitability framework while there was no evidence of clients suffering any losses in its misconduct.

HSBC Private Bank fined record HK$400 million, as appeals tribunal concludes earlier SFC sanction ‘was correct’

A HSBC spokeswoman said the broking arm “acknowledges and apologises for the deficiencies identified by the Securities and Futures Commission with regard to its past selling process for bonds listed … on the Stock Exchange of Hong Kong between April 2015 and March 2016”.

In a statement, the bank said the broking unit had “strengthened its sales suitability framework and cooperated with the Securities and Futures Commission fully in resolving its concerns”.

Separately, HSBC Private Bank (Suisse) was fined a record HK$400 million in November last year by the regulator, after losing its appeal against a 2015 ruling for misconduct relating to the sale of structured products linked to Lehman Brothers. The fine was the highest ever imposed by the SFC on a single firm.