HSBC Securities fined $375,000 for recommending unsuitable CMOs

23 August 2010

HSBC Securities has received a fine of $375,000 for recommending unsuitable Collateralized Mortgage Obligations (CMO) to clients.

According to the Financial Industry Regulatory Authority (FINRA), HSBC brokers were not adequately supervised by management, which led to customers not being fully aware of the risks associated with purchasing certain CMOs.

An investigation found that 43 unsuitable sales of high-risk investments made by HSBC brokers were made.

FINRA explained that 25 sales were of more than $100,000 while five resulted in client losses of $320,000, which the banking division has subsequently repaid.

James S Shorris, FINRA executive vice-president and acting chief of enforcement, said that more training and effective supervision could have prevented these mistakes from being made.

“The losses incurred by HSBC's customers likely would have been avoided had the firm sufficiently trained its brokers on the suitability and risks of inverse floating rate CMOs and reasonably supervised their brokers to ensure that they were making suitable recommendations.”

Although HSBC has neither admitted nor denied the charge, it has consented to FINRA’s findings.

Meanwhile, HSBC Holding is currently thought to be considering the sale of its US mortgage business.

By Jim Ottewill

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