Saturday, October 4, 2008

Hong Kong banks meet on Lehman Brothers bonds as risk-disclosure duty urged

Hong Kong's banks agreed on Friday to facilitate member banks in handling issues related to various Lehman Brothers investment products and increase their manpower to expedite the handling of specific complaints and inquiries arising from the Incident.

After their first meeting here on Friday, the task force formed by the Hong Kong Association of Banks to deal with the issues arising from local investors' holding of the Lehman Brothers mini-bonds also agreed to follow up with Lehman's liquidators and trustees, with a view to passing onto affected customers more information concerning the collateral and redemption arrangement.

Since various investment products are involved in Lehman's mini- bonds, the task force also consented to form subgroups to conduct detailed analysis on each category of investment products and promised to maintain close contact with the regulators on the development of the Incident, endeavoring to help the affected customers.

In view of widespread public concern over the marketing of retail structured products triggered by the collapse of Lehman Brothers Holdings Inc., the Securities and Futures Commission of Hong Kong issued a circular Friday requiring all issuers of retail investment products to review whether risk disclosure and product descriptions are adequate, given the current market conditions.

Directed at issuers of all retail investment products, including retail collective investment schemes and retail structured products, the circular said marketing materials issued "must be clear, fair and present a balanced picture with adequate and prominent risk disclosure" in compliance with all applicable regulations.

"Recent events show that investors need to be presented with a clearer picture of product risks they need to understand better how products will operate in extreme market conditions or in the face of bankruptcy," said SFC Chief Executive Officer Martin Wheatley.

"We are reminding issuers of retail investment products, therefore, that they must exercise their duty more diligently within the current regulatory framework to disclose risks and explain their products," he added.

The circular further reminds issuers to include in their marketing materials "upfront, prominent and adequate warnings" of all risks, including "new risks" emerging from prevailing market conditions.

Issuers seeking authorization from the SFC to market retail investment products also are advised to "revise their documents inlight of the recent market events."

According to SFC statistics, Lehman Brothers issued a total of mini-bonds worth 12.7 billion HK dollars and more than 10,000 citizens in Hong Kong were estimated to have bought them through banks or brokerages.

Source: Xinhua

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