Hang Seng Bank was fined by Hong Kong’s securities regulator for misconduct and overcharging from the sales of investment products.
The Securities and Futures Commission has fined Hang Seng HK$66.4 million ($8.5 million) for «serious regulatory failures in relation to the bank’s sale of collective investment schemes (CIS) and derivative products and overcharging its clients and making inadequate disclosure of monetary benefits», according to a statement.
The violations were found from findings via the Hong Kong Monetary Authority’s investigations as well as self-reporting by the local lender.
Fund Sales
Firstly, there were issues linked to the sales of CIS or mutual funds. 111 client accounts were found to have 100 or more CIS transactions during this period, of which most were declared as self-directed in contrast with findings that 46 clients had been influenced by their relationship managers’ solicitation or recommendation in their trades.
They were also solicited into conducting excessively frequent transactions with short holding periods which contradicted both the funds’ investment objectives and clients’ preferred investment horizons, resulting in significant transaction costs and impact to overall investment performance.
Derivative Products
Secondly, 388 clients who were not characterized by Hang Seng as «having knowledge of the nature and risks of derivatives» purchased derivative funds in 629 transactions.
148 of these transactions also involved products whose risk level was higher than clients’ risk tolerance level.
Overcharging and Inadequate Disclosure
Thirdly, the probe found that Hang Seng had retained monetary benefits from client transactions in circumstances where it should not have done so, charged fees beyond amounts previously communicated and failed to adequately disclose trailer fee arrangements. In total, the bank received at least $22.4 million in excess benefits or fees from such transactions.
Hang Seng has since compensated the impacted clients and taken remediation steps and enhancement measures to rectify and strengthen its internal controls.
«[Hang Seng Bank's] misconduct in these cases was serious and systemic. We will not hesitate to take robust enforcement actions against errant intermediaries, and the case underscores our determination to hold intermediaries to the highest standards,» said Christopher Wilson, SFC’s executive director of enforcement.
