The Securities and Futures Commission (SFC) has reprimanded and fined HSBC Broking Securities (Asia) Limited (HSBCBS) $9.6 million for systemic deficiencies in its bond selling practices (Note 1).
The SFC found that between April 2015 and March 2016, HSBCBS executed 378 transactions of bonds listed under Chapter 37 of the Main Board Listing Rules (Chapter 37 Bonds), 153 of which involved recommendations or solicitations made to clients (Note 2).
In selling these Chapter 37 Bonds to its clients, HSBCBS failed to:
- conduct proper and adequate product due diligence on individual bonds before making recommendations or solicitations to its clients;
- have an effective system in place to assess its clients’ risk profile and to ensure that the recommendations or solicitations made to its clients in relation to bonds were suitable for and reasonable in all the circumstances;
- provide adequate product information to its sales staff to ensure that they fully understood the features and the risks involved so that they could provide adequate disclosure and explanation to the clients during the sale process; and
- maintain proper documentary records of the investment advice or recommendations given to its clients.
In deciding the disciplinary sanctions, the SFC took into account that:
- HSBCBS failed to put in place an effective system to ensure suitability of bonds recommended and/or solicited to clients despite the SFC’s repeated reminders to licensed corporations on the importance of compliance with their suitability obligations, and specific guidance regarding the selling of fixed income products, complex and high-yield bonds;
- a strong message has to be sent to the market to deter similar misconduct;
- HSBCBS has taken remedial measures to enhance its suitability framework;
- there is currently no evidence suggesting any client has complained about HSBCBS’s selling practices or suffered losses; and
- HSBCBS cooperated with the SFC in resolving its concerns.
- HSBCBS is licensed to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the Securities and Futures Ordinance.
- Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited