Australian regulator extracts enforceable undertaking from HSBC

Chris Hamblin

19 May 2016

The Australian Securities and Investments Commission conducted surveillance on HSBC with an eye on the advice it was giving investors about structured products and found instances where advisors had obtained little or no information about clients' relevant personal circumstances. In 2014 it raised concerns that that advice may not have been appropriate for the clients' circumstances or needs.

The regulator was also worried about the provision of statements of advice (SOAs) to certain clients who may have received an execution-only service and the adequacy of 'product replacement disclosure' that reps provided to certain clients.

About 557 clients invested in structured products. HSBC subsequently reviewed all of its advice on structured products and lodged a breach notification with ASIC, reporting potential deficiencies in the advice provided to approximately 464 of the 557 clients it had reviewed.

The enforceable undertaking obliges HSBC to:

develop and enforce a remediation plan to ensure that wronged clients are remediated in an efficient, honest and fair manner;
come up with an assessment plan to determine whether the problems it has identified in its advice about structured products extend to clients it advised to invest in other types of products between January 2009 and March 2013 and, if so, to ensure that those other clients are also fairly remediated; and
appoint an independent expert to report to ASIC about the adequacy of its review and remediation.

According to ASIC, HSBC might not have complied with its obligations under ss912A(1), 945A and 947D Corporations Act. Section 912A(f), interestingly, obliges firms to ensure that their reps are adequately trained and competent to provide financial services. It also suspects (but does not go so far as to allege) that HSBC broke two of the terms of its Australian Financial Services Licence (AFSL) as defined in s761 of the Act. Conditions 3 and 4 state that the firm should establish and maintain compliance measures that ensure that it complies with the financial services laws and that it should ensure that its reps are trained adequately - the same point as s912A(f).