HSBC fined £39m for "systemic failures" around Lehman Brothers derivatives

HSBC’s Swiss private bank today received a record fine from Hong Kong authorities for “systemic failings” around selling derivatives from US bank Lehman Brothers weeks before its devastating collapse.

The bank will have to pay 400m Hong Kong dollars (£39m) after it failed an appeal against the decision by the Hong Kong Securities and Futures Commission (SFC). However, the fine was lower than the 605m Hong Kong dollar fine originally sought by the watchdog.

The SFC also imposed year-long bans on advising in securities and a partial ban on dealing.

Read more: Threat to City as 20 big banks including HSBC support new clearing bid

The suspension of the securities licence will not affect the bank’s current operations in Hong Kong, the bank said, as the action relates to a legal entity which is no longer used to service clients.

HSBC sold notes from Lehman Brothers until only a fortnight before it collapsed in September 2008, despite knowing the US bank was at risk of defaulting, the SFC said.

In the summer of 2008 the financial crisis had already started to cause significant volatility in financial markets, but the collapse of Lehman Brothers proved to be the trigger for the worst bout of market volatility since the Great Depression.

HSBC Private Bank also sold clients derivatives which were much higher-risk than the risk tolerance of clients. The bank did not keep proper records of its reasons for giving clients the higher-risk products.

Read more: HSBC's profits jump as the bank looks to Asia for growth

Ashley Alder, the SFC’s chief executive, said: “In combination with flawed practices and intrinsically high risk products, the bank’s failures magnified the risk and occurrence of significant losses for customers. Accordingly, we have decided very substantial sanctions are required.”

In a statement the bank said: “HSBC is committed to delivering fair outcomes for our clients and the orderly and transparent operation of financial markets.

“HSBC Private Banking has stringent processes and controls which are in line with the evolving regulatory landscape, and has enhanced its investment advisory model to further align investments to client needs and to deepen clients’ understanding of the nature and risks of the products.”

Read more: HSBC and Barclays throw weight behind green finance projects

Full story: HSBC fined £39m for "systemic failures" around Lehman Brothers derivatives: City A.M.

JefferiesAnd the Best Place to Work in the global financial markets 2018 is...

Register for HITC Business News