Hong Kong’s markets watchdog has fined Hang Seng Bank HK$66.4 million (US$8.5 million) for regulatory failures and overcharging clients.
The Securities and Futures Commission (SFC) said on Monday there were serious regulatory failures on the part of the bank regarding the sale of collective investment schemes (CIS) and derivative products and charging its clients excessive fees between February 2014 and May 2023.
Hang Seng Bank made at least HK$22.4 million in excess fees from these transactions.
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“[Hang Seng’s] misconduct in these cases was serious and systemic,” Christopher Wilson, the SFC’s executive director of enforcement, said in a statement. “In particular, clients who declared making investment decisions themselves were in fact repeatedly solicited by [Hang Seng’s] relationship managers to engage in frequent and excessive CIS transactions.”
The SFC and HKMA led an investigation into Hang Seng Bank. Photo: Shutterstock alt=The SFC and HKMA led an investigation into Hang Seng Bank. Photo: Shutterstock>
The disciplinary action stemmed from a Hong Kong Monetary Authority (HKMA) investigation, which revealed a range of concerns regarding Hang Seng’s sale of CIS products from June 2016 to November 2017, according to the SFC’s statement.
The SFC said that 111 client accounts were found to have executed 100 or more CIS transactions during the period. While most transactions were declared as the client’s “own choice”, some 46 clients had been influenced by their relationship managers’ solicitation or recommendation in their trades, according to the statement.
The excessively frequent transactions with short holding periods contradicted the funds’ investment objectives and the clients’ preferred investment horizons, which resulted in significant transaction costs borne by the clients, which greatly affected their overall returns, the SFC said.
Hang Seng Bank’s internal controls did not adequately supervise and monitor the sale of CIS products to its clients and failed to keep a sufficient audit trail to ensure that transactions were genuinely initiated by clients, according to the SFC.
The bank also failed to put in place sufficient controls to monitor and follow up on potentially problematic transactions after they had been conducted.
