The Securities and Futures Commission (SFC) of Hong Kong has reprimanded HSBC Securities Brokers (Asia), a wholly owned subsidiary of The Hongkong and Shanghai Banking Corporation Limited (HSBC), and fined it $5 million for providing inaccurate information to the SFC during a licence application process.
HSBC Securities submitted a licence application to carry on business in Type 7 (providing automated trading services) regulated activity for its provision of matching and crossing services in Hong Kong (Crossing Service) in May 2010.
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During the licence application process, HSBC Securities represented to the SFC that existing clients would be given the option of "opting in", by signing "opt in letters", if they wished to participate in the Crossing Service (the "opt in" approach). The SFC granted HSBC Securities a Type 7 licence in March 2011.
In July 2011, the media reported that HSBC proposed to launch the Crossing Service to its retail clients, and that an "opt out" approach would be adopted, whereby clients would effectively be assumed to consent to their trades being matched and crossed on the Crossing Service unless they took the initiative to notify HSBC otherwise.
This is contrary to the representations that HSBC Securities had made to the SFC during the licence application process.
An SFC investigation found that:
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By GlobalData- A preliminary decision by HSBC to change the enrolment approach for retail clients from "opt in" to "opt out" was made in mid-October 2010 but as a result of internal miscommunication, when the SFC specifically queried HSBC Securities in November 2010 whether the "opt in" approach would apply to retail clients, HSBC Securities misrepresented to the SFC that this would be the case.
- When the decision to change from "opt in" to "opt out" approach for retail clients was confirmed in around December 2010, HSBC Securities failed to notify the SFC about the change as required by the Securities and Futures (Licensing and Registration) (Information) Rules.
- The SFC considers that HSBC Securities’ failure to ensure the accuracy of information submitted to the SFC in support of its licence application and its failure to notify the SFC about the change from "opt in" to "opt out" approach for retail clients called into question its fitness and properness as a licensed person.
- In deciding the sanction, the SFC took into account that HSBC Securities has cooperated with the SFC in resolving the disciplinary action and agreed to engage an independent reviewer to review its access controls concerning trading information in the Crossing Service.
