HSBC Unit Settles Unregistered Broker-Advisor Charges With SEC

A Swiss unit of U.K. financial services giant HSBC Holdings plc. settled charges that the firm repeatedly sold securities and rendered advisory services in the U.S. without registering with the Commission despite legal advice to the contrary. Although the wrongful conduct ended in 2011 in the wake of government enforcement actions against another Swiss financial giant, the firm was required to admit violations of the federal securities laws and the underlying conduct as part of a settlement of the charges. In the Matter of HSBC Private Bank (Suisse), SA, Adm. Proc. File No. 3-16288 (November 25, 2014).

Respondent HSBC Private Bank is the product of a 2009 merger between HSBC Private Bank and HSBC Guyerzeller Bank, both of which were based in Switzerland. From 2003 through 2008 the two entities operated independently, although their operations were at least in part similar. Both were part of Group Private Banking which was ultimately governed by HSBC Holdings.

From at least 2003, and continuing until 2011, the two banking entities engaged in broker-dealer and investment adviser activities in the United States. Each unit had relationship managers who solicited, established and/or maintained brokerage and investment advisory accounts in this country. They also solicited, accepted and executed orders for securities transactions. During the period the two banking entities as many as 368 U.S. client accounts. The U.S. client accounts had as much as $775 million under management and were serviced by as many as 100 relationship managers located in Geneva and Lugano. Those managers made more than 40 trips to the U.S. to meet with clients during the period.

In October 2003 HSBC Private Bank (prior to the merger) sought advice from an outside law firm regarding compliance with U.S. law. Subsequently, the firm created a dedicated North American desk. Operations in the U.S. were to be consolidated through the desk in a manner that complied with the applicable law in this country. A June 2005 audit of the operations demonstrated that, although all U.S. accounts were required to be consolidated on the desk by April 1, 2005, in fact the actions had not been taken and the firm was not fully compliance with U.S. law. Despite continuing efforts to bring the operation into compliance, by 2008 the firm still had 156 U.S. client accounts that held securities.

HSBC Guyerzeller, prior to the merger, had similar operations and also took steps to ensure compliance with U.S. law which were not fully implemented. During the period the unit had as many as 176 U.S. client accounts that held securities. In 2001 the firm sought advice from a U.S. law firm regarding compliance with United States law. Despite a series of efforts by the firm over a period of time, by 2008 U.S. accounts that had been expected to be closed remained open.

In 2008 the two firms planned to, and did, merge. During the process, UBS AG, a large Switzerland-based multinational financial services company, announced that it would cease providing banking services to U.S. client. The announcement came in the mist of well-publicized civil and criminal investigations into the firm’s operations which related in part to the provision of cross-boarder banking, broker-dealer and investment advisory services to U.S. clients.

In February 2009 the merged HSBC units decided to exit part of the U.S. market. Nearly all of HSBC Private Bank’s U.S. client accounts were closed by the end of 2011. The Order alleges violations of Exchange Act Section 15(a) and Advisers Act Section 203(a).

To resolve the proceeding Respondent admitted to violating the federal securities laws and to the facts detailed in the Order and consented to the entry of a cease and desist order based on Exchange Act Section 15(a) and Adviser Act Section 203(a) as well as a censure. In addition, the firm will pay $5,723,193 in disgorgement, prejudgment interest and a civil penalty of $2.6 million.

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