12 June 2009
HSBC Holdings will become the first lender to separate its retail banking and wealth management departments after a public outcry over tellers selling risky financial products to customers.
The move is expected to be followed by other lenders and follows recommendations by the Hong Kong Monetary Authority that banks tighten regulations on such high-risk investment products sales.
The fallout from the Lehman Brothers Holdings minibond scandal, in which banks sold highly speculative products to inexperienced investors, has put selling practices in the industry under the spotlight.
HSBC announced yesterday that three of its 100 branches in Hong Kong would separate its deposit-taking and investment service areas.
The pilot branches are at Hopewell Centre in Wan Chai, and Pedder Street and Lyndhurst Terrace in Central. The scheme will be expanded to all branches by September.
Peter Wong Tung-shun, the bank's executive director, said different designs would be used for the general banking and investment service areas to make sure customers could easily differentiate the two zones. Such clear zoning was in line with the HKMA's recommended measures and would enhance investor protection, he said.
The HKMA received more than 20,000 complaints about mis-selling by staff of 20 banks, including products that are touted as alternatives to time deposits but were in fact risky credit-linked notes.
About HK$20 billion of the Lehman products were bought by 48,000 Hong Kong investors. The products became worthless when the United States lender went bankrupt in September last year.
Sales activities within the investment areas would be audio-recorded and the tapes kept for seven years, HSBC said.
A Standard Chartered Bank spokesman said the bank was finalising its arrangements and would launch new measures by September. A spokesman for Hang Seng Bank could not be reached for comment.
The HKMA suggested banks completely separate their wealth management businesses from ordinary banking business by October 1 and record sales activities with customers by July 1.
Julia Leung Fung-yee, the Undersecretary for Financial Services and the Treasury, said yesterday the HKMA had received 500 complaints from people who had lost hundreds of millions of dollars on a complex credit-linked investment product called Octave notes, sold by US investment bank Morgan Stanley.
Two-thirds of the notes, sold mainly through 16 retail banks between 2004 and 2007, have lost more than 90 per cent of their value.
Hong Kong investors had bought HK$24.9 billion worth of structured products, including Lehman minibonds and Octave notes. Of the credit-linked products, HK$4.5 billion is still outstanding.
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