The case concerns a unit of HSBC Holdings, HSBC Private Bank (Suisse) SA and its internal controls and sales practices for selling Lehman Brothers-related notes and “leveraged forward accumulators” between 2003 to 2008, according to local media reports.
The US investment bank collapsed in 2008, leading to derivative products linked to Lehman brothers becoming worthless.
The fine was levied against the bank in July 2015, with HSBC Private Bank announcing in October that it intended to appeal.
Details of the case were not previously made public, and were first revealed at the hearing at the Securities and Futures Appeals Tribunal on Wednesday.
There were failings in HSBC’s know-your-client (KYC) procedures, in which customers did not fully understand the risks of the investment products, according to Ming Pao Daily.
The hearing is expected to run until 12 May.
Defence
Former SFC chairman Anthony Neoh, the lawyer representing HSBC, argued at the hearing that the penalty was excessive, according to WSJ and Bloomberg reports.
The risk appetite of private banking clients is higher than those of retail customers, he said, and the investment tools are considered traditional “vanilla-type” structured products.
He said the SFC should not consider the private bank as it would a retail bank.
One of the products, equity–linked notes (ELN), can have the contracts cancelled any time, and there were no reasons at that time to refuse selling Lehman Brothers products, he said.
HSBC Private Bank holds type 1 and type 4 licenses in Hong Kong to operate business for dealing and advising on securities respectively.
The fine is the largest imposed by the Securities and Futures Commission.
