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November 22, 2017

HSBC Private Bank (Suisse) fined $51.2m for failures in selling structured products

HSBC Private Bank (Suisse) has been fined HKD400m ($51.2m) for systemic failures in selling structured products linked to collapsed US investment bank Lehman Brothers between 2003 and 2008.

The ruling by Securities and Futures Appeals Tribunal (SFAT) upheld previous disciplinary action  by the Securities and Futures Commission (SFC).

As a result HSBC Private Bank (Suisse) SA’s registration for Type 4 regulated activity (advising on securities) has been suspended for a period of one year and its registration for Type 1 regulated activity (dealing in securities) has also been partially suspended under the Securities and Futures Ordinance (SFO) for a period of one year.

The SFC said even after being aware of the deteriorating financial condition of Lehman Brothers, HSBC sold Lehman Brothers-related Notes (LB-Notes) to clients until 3 September 2008, which was two weeks before the collapse of the investment bank.

SFC alleged that HSBC did not reveal to clients that the LB-Notes were issued by Lehman Brothers and failed to warn clients about the increasing credit risk of the product during the sales process.

Additionally, the bank was also accused that in over 80% of the outstanding LB-Notes transactions, there was a mismatch between the client’s risk tolerance level 

SFC CEO Ashley Alder said: “HSBC Private Bank (Suisse) SA’s systems and controls for selling structured products fell significantly short of the standards expected of them. In combination with flawed practices and intrinsically high risk products, the bank’s failures magnified the risk and occurrence of significant losses for customers. Accordingly, we have decided very substantial sanctions are required.”

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