The Securities and Futures Commission (SFC), the financial regulator of Hong Kong, has reprimanded and fined The Hongkong and Shanghai Banking Corporation Limited (HSBC) $2.1 million for non-compliance with the telephone recording requirements under the Code of Conduct (Notes 1 & 2).
The fine stems from the failure of HSBC’s Private Banking Division to tape-record 5,830 client order instructions received through 59 affected telephone lines. According to SFC, HSBC failed to put in place effective internal control procedures to ensure proper implementation of the telephone recording function and timely detection of any telephone recording failures.
While deciding the sanctions, the SFC considered a variety of factors such as:
-HSBC self-reported the failures to the SFC and the Hong Kong Monetary Authority (HKMA)
– HSBC took remedial actions upon discovery of the incidents.
– The Bank agreed to engage an independent reviewer to review the effectiveness of the remedial actions undertaken in relation to the maintenance and functionality of the voice recording system used by its Private Banking Division
– Also agreed to submit the review report to the SFC and the HKMA, to ensure its compliance with the regulatory requirements.
The regulator noted that Paragraph 3.9(b) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission provides that, where order instructions are received from clients through the telephone, the registered person should use a telephone recording system to record the instructions and maintain telephone recordings as part of its records for at least six months.
HSBC is registered under the Securities and Futures Ordinance to carry on business in Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities.