Bank may have exposed buyers to unsuitable risk levels: SFC, HKMA

Asia-focused lender Standard Chartered Plc agreed to buy back HK$1.48 billion ($192 million) worth of equity-linked structured products guaranteed by the now bankrupt Lehman Brothers, Hong Kong regulators said on Tuesday.

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) said Standard Chartered Bank may have exposed buyers of Lehman Brother's equity-linked notes (LB ELN) to higher levels of risk than were suitable, the two regulators said in a statement.

"Without admitting liability, Standard Chartered has agreed to make a repurchase offer to eligible customers holding an outstanding Lehman Brothers equity-linked note distributed by Standard Chartered," the regulators said.

The payment will cover over 95 percent of outstanding transactions involving the equity-linked products sold by Standard Chartered, the SFC and the HKMA said.

"Intermediaries have an obligation to ensure suitability when making a recommendation or advising on securities. Assessing the right level of concentration is a necessary part of the suitability assessment," said the SFC Chief Executive Officer Martin Wheatley.

"For example, a person who invests most of his assets in a single investment runs the risk of losing nearly all his money if the investment fails. If the investment is already high risk, this degree of exposure may well be unsuitable," he explained.

Under the repurchase scheme, Standard Chartered will make the repurchase at a price equal to each eligible customer's original investment in outstanding not principal protected LB ELNs less 5 percent (or less 10 percent in the case of customers holding principal protected LB ELNs) of each customer's total assets held at Standard Chartered at the end of the month immediately preceding the purchase of the outstanding LB ELNs, or the amount invested in LB ELNs (whichever is higher).

Thousands in Hong Kong who bought equity-linked products guaranteed by Lehman Brothers lost their money after the US investment bank collapsed in 2008, with many regularly demonstrating outside the offices of banks in Central district, the city's financial center.

This forced the financial regulators to step in to force the banks to repay those who were sold the products despite having a low risk profile, an approach also taken by authorities in other places such as Singapore.

China Daily - Agencies