HSBC Fined for Unregistered Services; DOJ Probes Data Leak
HSBC Holdings plc (HSBC) continues to face regulatory actions for its past business misconduct. The Securities and Exchange Commission (“SEC”) has fined the company’s Swiss-based private banking division – HSBC Private Bank Suisse SA – for violating federal securities laws.
HSBC had failed to register with the SEC before it started offering cross-border brokerage and investment advisory services to the U.S. clients. Admitting to wrongdoings, the company agreed to pay $12.5 million to settle the charges.
HSBC, through its Swiss private banking unit, had started providing cross-border brokerage and investment advisory services some 10 years ago. The bank was able to amass 368 U.S. clients and collected fees totaling around $5.7 million. Further, the company executives traveled to the U.S. nearly 40 times to solicit clients, offer investment advice and make securities transactions.
HSBC understood the risks involved in violating the U.S. federal laws and created a North American desk to consolidate the U.S. client accounts. However, the relationship managers were unwilling to handover the accounts to the desk in the fear of losing clients. Notably, HSBC decided to exit its U.S. cross-border operations in 2010 and closed or transferred all accounts by 2011-end.
Earlier this year, Credit Suisse Group AG (CS) had also been fined by the SEC on similar charges. The Swiss bank agreed to pay $196 million and also admitted to wrongdoing.
In separate news, the U.S. Department of Justice (:DOJ) is probing allegations that an employee of HSBC leaked financially sensitive information related to a client to a major hedge fund in 2010. This news was first reported by the Wall Street Journal.
The client, U.K.-based insurer Prudential PLC (PUK), was being advised by HSBC on a deal to acquire Asian life-insurance business of American International Group Inc. (AIG) worth $35 billion. HSBC was working on a related currency transaction and a senior HSBC trader leaked information regarding the execution time of this transaction to the hedge fund, Moore Capital Management LLC. On that particular day, pound plunged nearly 3% against dollar. The event was revealed during an internal probe conducted by HSBC and later reported to the U.S. and U.K. regulators.
Earlier this month, HSBC, along with four other global banks, were penalized for manipulating foreign exchange currency rates by the U.S., British and Swiss regulators. These regulatory authorities entered into settlement agreements with Citigroup Inc., JPMorgan Chase & Co., The Royal Bank of Scotland Group plc, HSBC and UBS AG. The settlements amounted to around $3.4 billion in total. (Read More: Another Blow to Global Banks: Fined Billions for FX Manipulation).
Currently, HSBC carries a Zacks Rank #3 (Hold).
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