The Securities and Futures Commission, the main financial regulator in Hong Kong, also issued President Securities (Hong Kong) with a reprimand for “failing to act in the best interests of its clients” when accepting subscriptions for a number of Lehman Brothers related products.
Through an investigation, the SFC said it found that the selling process of the products gave rise to “a number of regulatory concerns”:
- The Taiwanese clients were referred to President Securities by its parent company in Taiwan, President Securities Corporation. They opened accounts with President Securities before they purchased the products, but the account opening process was handled by President Securities Corporation.
- President Securities staff signed as witnesses on the Taiwanese clients’ account opening documents when, in fact, they had never met the clients.
- No one from President Securities contacted the Taiwanese clients to verify their identities, explain the account opening documents to them, establish their financial situation, investment experience, and investment objectives, and make risk disclosure to them.
- President Securities did not sufficiently ensure that the Taiwanese clients understood the products and accepted the risks associated with them before accepting their subscriptions for the products. It relied on standard risk disclaimers signed by the Taiwanese clients even though no explanation of the disclaimers had been given to the clients.
- A number of the products prescribed minimum subscription requirements to restrict the categories of investors eligible to invest in them. Since some of the Taiwanese clients’ subscriptions amounts did not meet the minimum subscription requirements, President Securities pooled their orders together so as to meet the minimum subscription requirements. However, President Securities did not inform such clients that their orders would be pooled together.
Mark Steward executive director of enforcement at the SFC said: “Once again, we have had to take action against an intermediary over poor internal controls and practice causing loss and damage to customers. Intermediaries must demonstrate they have learned the lessons of the past four years to avoid harsher measures being imposed against them.”
