HONG KONG, Nov 21 (Reuters) - A Hong Kong tribunal on Tuesday imposed a fine of HK$400 million ($51 million) on the private banking unit of HSBC in a case related to the sale of Lehman Brothers-linked structured financial products between 2003 and 2008.
The Securities and Futures Commission (SFC) had originally imposed a penalty of HK$605 million in 2015 on the bank for its failure to meet “principles-based regulatory standards” at that time, which was later appealed by HSBC.
The securities regulator had started its investigation into the issue after some HSBC private banking clients’ complained of losses arising from investments in structured financial products of Lehman Brothers, which filed for bankruptcy in 2008.
The Hong Kong Securities and Futures Appeals Tribunal (SFAT) said that HSBC’s private banking unit was “culpable of material systemic failings in its marketing and sale of derivative products” in that period.
The tribunal also said the HSBC private banking unit’s registration for Type 4 regulated activity, which relates to advising on securities, would be suspended for a period of one year beginning Tuesday.
It also “partially suspended” its registration for dealing in securities for a period of one year, according to a copy of the order seen by Reuters.
HSBC said the suspension of licenses would not affect its current private banking operations in Hong Kong, as the business no longer operates under the sanctioned entity and the “legal transfer” to the existing division was completed in 2013.
“HSBC Private Banking has stringent processes and controls ... and has enhanced its investment advisory model to further align investments to client needs and to deepen clients’ understanding of the nature and risks of the products,” it said.
On the financial penalty, the bank said the tribunal would hear submissions from the Hong Kong securities regulator and HSBC.
SFC’s Chief Executive Ashley Alder said in a statement: “The message should be clear - our standards are designed to protect all investors including clients of retail or private banks.”
“When breaches of these standards occur, the SFC will take action to enforce them and strive to achieve outcomes that are in the interest of the investing public.”
$1 = 7.8125 Hong Kong dollars Reporting by Sumeet Chatterjee. Editing by Jane Merriman