Hong Kong regulator fines HSBC investment unit

Wed May 4, 2011 6:03am EDT

May 4 (Reuters) - Hong Kong's securities watchdog has fined a unit of HSBC Holdings Plc HK$3 million ($386,319) for not following adequate procedures in relation to the distribution of equity-linked notes, the regulator said in a statement.

The Securities and Futures Commission said on Wednesday it also partially suspended the licence of HSBC Trinkaus Investment Management for two years from April 30, 2011, preventing it from dealing in or advising investors on structured notes.

The case is related to equity linked notes HSBC Trinkaus issued to high net-worth clients prior to the 2008 financial crisis, according to a source with direct knowledge of the investigation.

The SFC said the investment manager did not have adequate procedures in place to ensure it conducted adequate due diligence on the notes before making recommendations to their clients.

The source only a relatively small number of individuals were affected compared to the 30,000 Hong Kong retail investors hit by the Lehman Brothers minibond default.

HSBC Trinkaus's annual report says its Hong Kong unit employed 10 people at the end of 2009, and posted a net income of $1.5 million. (Reporting by Rachel Armstrong; Additional reporting by Denny Thomas and Alison Leung in HONG KONG; Editing by Matt Driskill)