Conclusion flawed, Lehman investigation still has to be affirmed

The subcommittee set up by the Legco for the Lehman Brothers minibond disputes finally completed its report after three years and eight months of "persistent fight" just in time before the legislators' term ends, putting an end to the investigation.

　　Before the long-standing international financial institution Lehman Brothers went bankrupt, local financial institutions issued $20 billion worth of structured products linked with Lehman loans and sold through banks to over 40,000 customers. Many of them were packaged as "minibonds" for sale, misleading many conservative depositors to suddenly transform into holders of high-risk minibonds. The public agrees with holding regulatory bodies and officials accountable but the scope of controversy mainly lies in the degree of severity.

　　The final conclusion of the subcommittee was to reprove the then Monetary Authority CEO Joseph Yam Chi-kwong, express "great disappointment" with the then Securities and Futures Commission chief Martin Wheatley and at the same time express disappointment with Financial Secretary John Tsang Chun-wah and Secretary for Financial Services and the Treasury Chan Ka-keung. A Lehman victim organization immediately criticized that the report was too lenient and asked the two officials to step down. On the other hand, there were legislators in the subcommittee who disagreed with reproving Yam in the report and they refused to sign it. Yam himself responded to it with "Justice is in the hearts of the people".

Criticism meted with different severity and pleasing neither side

　　The criticism made in the Lehman report has drawn many disputes. The difference in treatment of Yam and Wheatley is one of the things most unable to convince the public. Yam certainly has to bear responsibility for his fault in supervising the banks' selling practices of Lehman minibonds. But with the banks selling minibonds, the Securities and Futures Commission is also duty-bound. Hence the authority and commission should bear equal responsibilities. Since the subcommittee's conclusion said it wanted to treat the matter strictly, then it should have treated everyone equally. Now the criteria lack consistency and credibility undermined. Also, both the victims and those condemned were dissatisfied. It gained favour from neither side.

　　However, the impartiality of accountability issue in the report being called to question does not mean the subcommittee has wasted so much time and $28 million of public money. If the Legco had not formed this subcommittee and caused unprecedented political pressure through vigorous pursuit, the government officials, regulatory bodies and banks might not necessarily have so seriously addressed the plight of Lehman victims and done their best to reduce their losses.

Investigation produces effect, reduces victims' losses

　　Through pressuring at different levels, the regulatory bodies remedied the situation and investigated fully. Banks could not but seriously look into faults in their selling procedures. Finally, unprecedented compensation proposals and settlement arrangements were made. Some of the victims could get back 90 per cent of their capitals. The risk was passed back onto the banks. Banks incurred losses in both business reputation and money and they learned a painful lesson.

　　The Legco's investigation provided Lehman victims with added bargaining power when facing financially strong banks. Banks now pay more attention to a price they had finally to pay for "unscrupulous business operations" and misleading customers into investing in products that did not suit their own risk appetites than before. This resulted in a consensus among regulatory bodies and banks to launch all types of arrangements to protect the interests of customers including the separation of counters providing traditional banking from those for investment services, doing proper customer risk assessments, recording the process of selling the products and ensuring clear explanation of the products and risk to the customers.

　　The conclusion of the subcommittee's report this time is not perfect. But, the investigation itself has functioned, which is much more important than the conclusion itself. It produced results in serving the people, monitoring the government, pushing reforms and enhancing protection for the citizens. These functions should be affirmed.