The Securities and Futures Commission (SFC) has fined a retail broking unit of HSBC in Asia a hefty HK$9.6 million ($1.22 million) for sloppy sales of bonds.
Hong Kong’s top securities watchdog has taken issue with the way British-headquartered HSBC has been selling bonds to clients without doing its homework first; neither did it carefully match the bonds to the risk appetite of those clients, it said in a statement on Thursday.
The SFC appears to making inroads into its backlog of old case files and making an example of key market players. The SFC levied a record HK$497 million in fines last year – a 632% increase on 2016, according to analysis by law firm Freshfields.
The SFC found that between April 2015 and March 2016, HSBC Broking Securities (Asia) executed 378 transactions of bonds listed under Chapter 37 of the Main Board Listing Rules, 153 of which involved recommendations or solicitations made to clients.
HSBC’s failures follow repeated warnings by the SFC about these bonds. In March 2016 the SFC said that many of these Chapter 37 bonds can be complex, potentially risky as well as highly illiquid.
“Chapter 37 Bonds are unsuitable for sale to retail investors. Chapter 37 Bonds are meant to be targeted only at professional investors (including high net worth investors),” it said at the time.
To be sure, there is no evidence HSBC’s clients have complained about its selling practices or suffered losses.
An HSBC spokesman said in an emailed comment that HSBC Broking has strengthened how it assesses clients' suitability for investment products "and cooperated with the Securities and Futures Commission fully in resolving its concerns".
HSBC’s investment banking arm was ranked highest in terms of volume for underwriting G3 bonds by Asia Pacific ex-Japan issuers during this period, ahead of peers Citigroup and Bank of America Merrill Lynch, according to league table provider Dealogic. For the year to date, HSBC again ranks top of the asset class after underwriting $12.8 billion worth of G3 bonds across 108 deals.
The HSBC spokesman noted that the fine had nothing to do with recent management changes in its debt capital markets team in Asia.
In early June HSBC named Sean Henderson and Sean McNelis as co-heads of debt capital markets for the Asia Pacific region following the planned move of Alexi Chan, previously global co-head of debt capital markets, from Hong Kong to London in July.
In his new role, Chan will be responsible for driving business across different asset classes including debt and equity products, as well as structured finance and corporate risk solutions.