HSBC's Swiss-based private banking arm has agreed to pay $12.5 million to the Securities and Exchange Commission to settle charges that it violated federal securities laws by providing unregistered cross-border brokerage and investment advisory services to U.S. clients, the securities industry regulator announced Tuesday.
According to the SEC, relationship managers with HSBC Private Bank traveled to the U.S. to solicit clients, provide investment advice and induce securities transactions even though they were neither registered to provide such services nor affiliated with a registered investment adviser or broker-dealer. They also communicated directly with U.S. clients through overseas mail and emails, the SEC contends.
"HSBC's Swiss private banking unit illegally conducted advisory or brokerage business with U.S. customers," Andrew J. Ceresney, director of the SEC's Division of Enforcement, said in the announcement.
According to the SEC, HSBC Private Bank and its predecessors began providing cross-border advisory and brokerage services in the U.S. more than 10 years ago, amassing as many as 368 U.S. client accounts and collecting fees totaling approximately $5.7 million. In 2010, it exited the U.S. cross-border business, and nearly all of its U.S. client accounts were closed or transferred by the end of 2011.
HSBC Private Bank, which admitted to wrongdoing, undertook compliance initiatives to manage and mitigate the risk of violating U.S. securities laws, creating a North American desk to consolidate U.S. client accounts among a smaller number of relationship managers and serving them in a manner that would not violate U.S. registration requirements. The initiative, however, proved insufficient as relationship managers were reluctant to lose clients by transferring them to the North American desk. As a result, U.S. accounts that should have been closed remained open.
"HSBC Private Bank's efforts to prevent registration violations ultimately failed because their compliance initiatives were not effectively implemented or monitored," Ceresney said.
Rob Sherman, a spokesperson for HSBC, did not immediately return an email or phone call seeking comment.