24 June 2009
HONG KONG: The Securities and Futures Commission (SFC) may take disciplinary action against some financial institutions due to misconducts related to the mis-selling of risky derivative products to individual investors, Martin Wheatley, chief executive of the market watchdog, said yesterday.
The SFC has completed its investigation into 11 of the 19 banks that had distributed toxic Lehman Brothers "minibonds" to individual investors, Wheatley told legislators yesterday at a public hearing on the issue by the legislature.
Seven of the banks have been served with a notice of proposed disciplinary action (NPDA) while the other four will soon be served with a similar notice as apparent evidence indicated mis-selling of risky debt derivatives, he said.
Disciplinary proceedings will be taken against these banks unless they agree to compromises, he said.
Sending out an NPDA is the first step the SFC will take after it has decided to start disciplinary proceedings.
A NPDA sets out the findings of the SFC investigation and indicates the sanctions the SFC considers appropriate to impose.
Wheatley did not elaborate on the likely disciplinary sanctions.
But, according to the Securities and Futures Ordinance (SFO), which governs the operation of the SFC, the market watchdog is empowered to discipline regulated persons or firms who are found guilty of misconduct.
Sanctions that could be taken by the SFC include revocation of license or registration, suspension of licence or registration, prohibition of application for licence or registration, fines up to $10 million and reprimands.
Individual investors, who have bought minibonds or other toxic derivatives products, welcomed the latest move by the SFC but claimed that the move is far from enough to force banks to buy back the toxic financial products at their original investment value.
"It is too mild a move. The SFC should have applied for the establishment of a Market Misconduct Tribunal to handle these serious market misconducts," said Peter Chan, chairman of Allied Victims of Lehman Products.
"Banks (that distributed the toxic products) have tried their best to avoid redeeming all the toxic financial products at full face value. The SFC should have taken disciplinary sanctions much earlier," he added.
Wheatley said the market watchdog will complete its investigation of the remaining eight banks as soon as possible.
He also confirmed during the hearing that the SFC had received complaints about mis-selling against financial institutions from investors who had bought credit-linked notes (CLN) and equity-linked notes (ELN) from them.
Many of these investors, who have suffered huge losses from their investment in CLNs and ELNs amid the volatile market in the past several months, claim that they bought CLNs and ELNs only because of mis-presentation by financial institutions.
The market watchdog has not started investigation on these complaints yet, Wheatley said.
He said the SFC had received 8,400 complaints against financial institutions, mostly alleging mis-selling of Lehman minibonds.
Wheatley declined to comment on reports that BOC Hong Kong had offered to buy back all minibonds it distributed at 40 percent discount to the original investment value.
Wheatley is scheduled to attend another public hearing on the minibond issue by the legislature this Friday.
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