Hang Seng Bank Fined HK$66.4 Million for Regulatory Failures and Client Overcharging

Enforcement collaboration between HKMA and SFC - SFC reprimands and fines Hang Seng Bank Limited HK$66.4 million for misconduct in selling practices of investment products

The following is issued on behalf of the Hong Kong Monetary Authority:

The Securities and Futures Commission (SFC) has reprimanded and fined Hang Seng Bank Limited (HSB) HK$66.4 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 to them during various periods over the course of nine years between February 2014 and May 2023 (Notes 1 and 2).

Sales practices in relation to CIS

The SFC's disciplinary action stemmed from a referral by the HKMA whose investigation revealed a range of concerns regarding HSB's sale of CIS products during the period from June 1, 2016, to November 30, 2017.

Specifically, 111 client accounts were found to have executed 100 or more CIS transactions during the material period. While most transactions were declared as the client's "own choice", 46 clients had in fact been influenced by their relationship managers' solicitation or recommendation in their trades. They were solicited into conducting excessively frequent transactions with short holding periods, a trading pattern which contradicted both the funds' investment objectives and the clients' preferred investment horizons. The frequent trades in CIS products resulted in significant transaction costs borne by the clients, which greatly affected their overall profit and loss.

HSB's internal controls were deficient in that they did not adequately supervise and monitor the sale of CIS to its clients. In this connection, the bank failed to keep a sufficient audit trail to ensure that transactions were genuinely initiated by clients. It also failed to put in place sufficient controls to monitor and follow up on potentially problematic transactions after they had been conducted.

Sale and distribution of derivative products

The HKMA also referred its investigation findings in relation to HSB's sale and distribution of derivative products to the SFC. From February 17, 2014, to December 19, 2018, 388 clients who were not characterised by HSB as having knowledge of the nature and risks of derivatives purchased derivative funds in 629 transactions, and 148 of these transactions involved products whose risk level was higher than the clients' risk tolerance level.

Overcharging and inadequate disclosure of monetary benefits

A joint investigation by the SFC and the HKMA further found that, during various periods between November 2014 and May 2023, HSB had:

retained monetary benefits from client transactions in circumstances where it should not have done so under applicable regulatory standards;

charged its clients transaction fees beyond amounts previously communicated to them; and

failed to adequately disclose trailer fee arrangements to clients trading in investment funds (Note 3).

In total, HSB received at least HK$22.4 million in excess benefits or fees from these transactions.

In light of these findings, the SFC considers that HSB has failed to:

act with due skill, care and diligence, in the best interests of its clients and the integrity of the market;

have, or employ effectively, the resources and procedures which are needed for the proper performance of its business activities;

make adequate disclosure of relevant material information to its clients;

avoid conflicts of interest and ensure that its clients are treated fairly; and

comply with all relevant regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of its clients.

These issues were first brought to the SFC's attention by self-reports from HSB or referrals of findings from the HKMA. HSB has compensated impacted clients and has taken remediation steps and enhancement measures to rectify and strengthen its internal controls.

The SFC's Executive Director of Enforcement, Mr Christopher Wilson,said, "HSB's misconduct in these cases was serious and systemic. In particular, clients who declared making investment decisions themselves were in fact repeatedly solicited by HSB's relationship managers to engage in frequent and excessive CIS transactions. As a result, the clients ended up incurring substantial transaction costs to their detriment. HSB also overcharged a significant number of clients across a multitude of the bank's business lines over an extended period of time. 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."

"Our collaboration with the HKMA in this case exemplifies our shared commitment to maintaining the integrity of our financial markets and safeguarding the interest of investors."

The Executive Director (Enforcement and AML) of the HKMA, Mr Raymond Chan,said, "This enforcement outcome is a result of close collaboration between the HKMA and the SFC. It helps to send a strong message to the industry that they should have in place adequate systems to ensure compliance with applicable regulatory standards."

In deciding the sanctions, the SFC took into account all relevant factors, including:

HSB's CIS-related failures exposed its clients to significant loss;

HSB's monetary benefits-related failures occurred during various periods over the course of nine years and caused its clients to have been improperly charged fees of at least HK$22.4 million;

a strong message needs to be sent to the market to deter other market participants from allowing similar failures to occur;

HSB compensated clients for their loss and also refunded the excess monetary benefits retained;

HSB commissioned a number of internal and independent reviews upon discovery and self-reporting of its misconduct and enhanced its internal controls;

HSB's co-operation with the HKMA and the SFC and acceptance of the SFC’s findings and disciplinary action facilitated an early resolution of the matter; and

HSB has no previous disciplinary record.

A copy of the Statement of Disciplinary Action is available on the SFC website.

Note 1: This press release is issued jointly by the SFC and the Hong Kong Monetary Authority (HKMA).

Note 2:HSB is registered to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance.

Note 3: Trailer fee arrangements refer to commissions provided by fund houses to HSB in connection with its role in the distribution of funds.

AMS open day promotes National Security Education Day

To promote the National Security Education Day, the Auxiliary Medical Service (AMS) held an open day at its headquarters in Ho Man Tin today (April 19). The event aimed to enable members of the public to learn about the work of the AMS in safeguarding national security, to enhance public awareness of national security, and to further deepen their understanding of the daily operations and services provided by the AMS.

Addressing the opening ceremony, the Secretary for Financial Services and the Treasury, Mr Christopher Hui, said that safeguarding national security is the common responsibility of all. National security is not confined to single area; it is closely linked to finance, public health, and everyday community life. Among the 20 major fields of national security, biosecurity is closely related to the work of the AMS. The AMS provides various services to the public, including non-emergency ambulance transfer services, first aid coverage during large-scale public events, as well as duty at country parks and cycling tracks. The AMS spares no effort in safeguarding the safety and health of the general public. He would like to express his heartfelt gratitude to the members of the AMS for their unwavering dedication and commitment to protecting the public.

The Commissioner of the AMS, Dr Ronald Lam, said that this year marks the beginning of the country's 15th Five-Year Plan, and the theme of this year's National Security Education Day is "Proactively Align with the 15th Five-Year PlanFollow a Holistic Approach to Development and Security". The AMS has been strengthening members' and cadet corps' understanding of national security through various channels. In the past year, the AMS organised the "Together, We Set a New Record" event, setting a Guinness World Record for "Most pairs of people applying arm slings simultaneously", to promote the importance of first aid knowledge to the public. He expressed gratitude to all sectors for their support to the AMS, and added that the AMS will spare no effort in safeguarding national security and contribute to building a healthy and safe Hong Kong.

The open day featured a variety of engaging activities, including national security-themed game booths, first aid demonstrations, band foot drills, medical and health seminars, health screenings, as well as displays of ambulances and first aid bicycles. Through these activities, members of the public could gain a deeper understanding of the daily work of the AMS, access more health information, learn about developments in the healthcare sector, and at the same time enhance their awareness of national security.

AMS open day promotes National Security Education Day Source: HKSAR Government Press Releases

AMS open day promotes National Security Education Day Source: HKSAR Government Press Releases

AMS open day promotes National Security Education Day Source: HKSAR Government Press Releases

AMS open day promotes National Security Education Day Source: HKSAR Government Press Releases

AMS open day promotes National Security Education Day Source: HKSAR Government Press Releases

AMS open day promotes National Security Education Day Source: HKSAR Government Press Releases