The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have reached an agreement with RBS N.V., formerly known as ABN AMRO Bank N.V, in relation to the sale of Lehman Brothers-related equity-linked notes (LB-ELNs) to retail clients between July 2007 and May 2008.
RBS has agreed, without admitting any liability, to make a repurchase offer to all eligible customers holding outstanding LB-ELNs sold by the bank (including those sold by ABN Amro in Hong Kong before the acquisition by RBS of ABN Amro’s retail and commercial banking business) at 100% of the principal value of each eligible customer’s investment in the LB-ELNs.
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This resolution provides them an opportunity to reverse their purchase of the outstanding LB-ELNs.
The SFC estimates about 540 customers are eligible for the repurchase offer under this resolution which, if accepted by all, will lead to payments totalling approximately $513 million.
The eligible customers are retail customers holding outstanding LB-ELNs who were assessed to have a risk tolerance level that was more conservative than the risk rating assigned to the LB-ELN purchased by the customer. The risk profiling process in issue in this case was developed by ABN Amro prior to RBS’ acquisition of ABN Amro’s retail and commercial banking business.
The repurchase offer will not be offered to professional investors. The SFC’s investigation into the handling of professional investors by RBS in respect to LB-ELNs is continuing (Note 4).
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By GlobalDataRBS will also make top-up payments to retail customers with whom RBS has entered into settlement agreements in respect of their holding of outstanding LB-ELNs but would otherwise have been eligible to receive a repurchase offer to ensure these customers are treated in the same way as other customers participating in the repurchase scheme.
RBS will review complaints lodged by LB-ELN customers who are not eligible for the repurchase offer under its enhanced complaint handling procedures.
"This was a time consuming investigation that involved our investigators combing through tens of thousands of documents and listening to hours of telephone recordings. The problems caused by the errors in ABN Amro’s processes should send a warning to all intermediaries who seek to automate suitability processes with matching systems. An automated process cannot replace governance disciplines and professional judgement in assessing whether an investment advice or recommendation is reasonably suitable for the customer," the SFC’s CEO Ashley Alder said.
Meena Datwani, acting deputy chief executive of the HKMA, said, "This agreement with RBS represents the outcome of the investigatory efforts by the two regulatory authorities. The HKMA considers the agreement to be in the interests of the investing public as it allows eligible customers to recover the money they invested without the need to go through lengthy and costly legal processes."
The HKMA has also informed the bank that it does not intend to take any enforcement action against their executive officers and relevant individuals in connection with the sale of LB-ELNs to customers who have accepted the repurchase offers or the top-up payments under the repurchase scheme, except for any acts of dishonesty, fraud, deception or conduct that is criminal in nature.
