Safe investment: Monetary Authority Deputy Chief Executive YK Choi reminds banks they are required to comply with the Securities & Futures Commission's code of conduct in selling securities and futures products.

The Monetary Authority has launched investigations into 41 complaints alleging banks improperly sold Lehman Brothers-related investment products.

It has so far received 7,700 complaints from retail investors involving nine banks and has assessed 242 cases. Twelve cases have insufficient evidence of misselling while further information is being sought in 189 cases. Forty-one are being examined.

The authority's Deputy Chief Executive YK Choi said today banks are required to comply with the Securities & Futures Commission's code of conduct in selling securities and futures products. Financial intermediaries should explain the products and the risks they entail to their clients.

Banks must have adequate internal controls to ensure they properly assess investment products' suitability for their customers and adequate disclosure of the products' nature and risks. They must also disclose whether they are acting as agent or principal and assure clients have sufficient net worth to assume such risks and bear any losses that might ensue.

The authority conducts regular onsite examinations of banks' securities business and, where weaknesses are identified, issues guidance to the banks requiring them to enhance their controls. A guidance issued in March 2006 stressed the need to have special care in explaining products to vulnerable groups like the elderly and illiterate.

Investor protection review 

Also writing on the issue in his weekly Viewpoint column published today, authority Chief Executive Joseph Yam said investors' cases will be taken very seriously and proper disciplinary measures will be taken where needed.

He said the authority will advise on the adequacy of investor protection in Hong Kong in a report to be submitted to the Financial Secretary in three months.

Some questions to be addressed in the review include:

* whether the current "buyer beware" policy for the protection of investors remains proper, particularly in relation to small investors investing in complex financial products;

* whether the approval mechanism for the sales documents can ensure the comprehensive identification and adequate disclosure of the risks, so retail investors can take informed investment decisions;

* whether the code of conduct for distributors and the additional guidelines issued to the banks involved in such activity are adequate;

* whether the incentive system for the distributors promotes improper behaviour to increase sales volume; and,

* how the banks should better manage their risks, or whether it will be prudent simply not to offer the service to retail investors at all.