HSBC fined after poor documentation, due diligence breaches in bond sales
20 Jul 2018

Hong Kong’s securities regulator has hit HSBC’s Asia unit with a HK$9.6 million (US$1.2m) penalty for systematic deficiencies in its bond selling practice, which included compliance failings.

The Securities and Futures Commission (SFC) found that when selling bonds to clients, HSBC Broking Securities (Asia) failed to conduct proper and adequate product due diligence on individual bonds before making recommendations or solicitations to its clients.

It also fell short of having an effective system in place to assess its clients’ risk profile and to ensure that the recommendations made to its clients in relation to bonds were suitable in all the circumstances.

HSBCBS also failed to maintain proper documentary records of the investment advice or recommendations given to its clients.

In addition, “[it did not] 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,” the watchdog explained.

“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,” the regulator said.

An HSBC spokesperson said: “HSBC Broking Securities (Asia) Limited acknowledges and apologises for the deficiencies identified by the Securities and Futures Commission with regard to its past selling process for bonds … between April 2015 and March 2016.”

“HSBC Broking has strengthened its sales suitability framework and cooperated with the Securities and Futures Commission fully in resolving its concerns.”

– By Irene Madongo

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