To HKCEO

Thank you for your sending of the complaint to SFC and HKMA.
Enclosed are the rules and findings from Legco Minibonds report (English) that Bank of China lawyers choose to ignore in reply to me :

p. x - (n) guidance issued by National Association of securities dealers in US, TCF initiative of FSA in the U.K.

p. xi - (r)securities business of banks being regulated by HKMA and SFC largely ineffective

p. 61 4.24 - "INVESTMENT RISKS" - centrality of the CDS ....and its related companies in the product structure and their potential risks have not been duly highlighted in the issue propectus.

p. 61 4.25 - ...names of the seven reference entities ...which easily attracts attention upfront on these entities and overshadows other product features and risks which appear in the same sheet, but in much smaller font size.

p. 62 4.27 - ... GP2 (Diligence) requires intermediaries to act with due skill, care and deligence in the best interests of their clients.
Under GP4 (Information about clients), intermediaries are required to observe a number of "know your client" ( KYC) requirements. In making a recommendation or solicitation, intermediaries should ensure the suitability of the recommendation of solicitation for the client is reasonable in all the circumstances. In respect of derivative products, it is the intermediary's duty to ensure that the client understands the nature and risks of the product.

P.63 4.29 - The key suitability obligations on intermediaries are:

(a) Know their clients;
(b) Understand the investment products they recommend to clients;
(c) Provide reasonably suitable recommendations by matching the risk return profile of each investment product with the personal circumstances of each clients;
(d) Provide all relevant material information to clients;
(e) Employ competent staff and provide appropriate training;
and
( f ) Document and retain the reaons for each product recommendation.

p.78 5.6 According to GP2 of the code of conduct, intermediaries should act with due skill, care and diligence and in the best interest of the customers ............intermediaries need to consider include market and industry risks, economic and political enviroments and any other factors which may impack on the risk-return profiles of the investments. .... intermdiaries should make their own enquiries and obtain explanation from the issuers about the products instead of relying on propectuses and marketing materials only. ... Intermediaries should also ensure that product due diligence is conducted on a continuous basis having regard to the nature, features and risks of investment products.

p.81 (f) - Legal/regulatory implications on the bank - compliance with the local laws and regulations, cross-border regulatory requirements, disclosure/reporting obligatgions.

******* lies of BOCHK to Legco (and to
newspapers)******
p.82 local product teams/committees comprising qualified staff with extensive relevant market experience conducted product due diligence in accordance with the bank's product due diligence guidelines.
****************************************************
p.82 5.10 - (BOCHK) prepared a four-page summary in Chinese giving a very short description of the features and six major risks of the products. The summary also contained a statement that the product was not suitable for investors with low or medium risk tolerance levels....


p.83 5.11 - (BOCHK) did not introduce a formal risk rating to the ... structured products it offered until August 2004

p. 86 5.19 - ...the documents....did not clearly show in which aspects the products were suitable for different risk catagories of investors, as required under the Suitability FAQ.

p. 89 5.26 - According to the management of the six banks, it was mandatory for sales staff to attend both general and product-specific training.

p. 94 5.35 - the general training provided to their sales staff focused on generic market and product knowledge, regulatory and compliance requirements (such as the Code of Conduct, KYC requirements, suitability obligations) applicable to the sale of investment products. ......... Most of
the RMs also recalled that the management had drawn their attention to the Suitability FAQ issued by SFC.

p.94 5.36 - ...........Another IC stated that most of his information .... deteriorating financial condition came from the media. One of the ICs indicated that he had not received any instruction requiring him to inform the sales staff about ... worsening financial position.

p. 101 5.49 .... the handling RM must first ensure that the customeer had a valid risk/investment profiling. (.. for 12 months.)

p. 102 5.51 ... structure products....were not suitable for everyone and were not suitable for inexperienced investors.

p. 105 5.57 ....with risk mismatch ....additional safeguards were implemented to ensure that the customers understood the products risks.
...

p. 117 5.80 ....all the steps of providing offer documentations and product explanation had been taken by their RMs prior to completion of their transactions....

p.117 5.81.... the banks had relied heavily on the signed written declarations as proof of the customers' understanding ... of the structure products. .. It should be noted that the signing of forms could not necessarily demonstrate that the product had been properly explained by the bank staff and understood by the customer.

And the most important part :

p. 131 5.110 ....(BOCHK) had resolved over 20% of their outstanding cases through ECHP.

p. 137 6.11 CCB... announced that after seeking legal advice from the Department of Justice ......five cases were still under investigation.....