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SEBI Gets Tough on HSBC after MoneyLife’s Expose


Moneylife’s action to expose HSBC for mismanaging the funds of singer Suchitra Krishnamoorthi has paid off; SEBI has now asked HSBC to explain its behaviour or face the prospect of losing its mutual fund distributor licence. In a notice on Nov 1, SEBI has a strongly worded assessment of HSBC’s action and a demand to get the facts out.

After an extensive investigation of her complaint, SEBI found out that:

  • There was excessive churning in the portfolio of the complainant as per details of all the mutual fund transaction carried out for the complainant by HSBC. The complainant’s money had been invested in 38 different schemes of mutual funds.
  • A large number of the investments made in Mutual Fund Schemes have been redeemed in short span of time and redemption proceeds have been used to again invest in other Mutual Fund Schemes, some of which appear to be similar to the schemes redeemed.
  • The Mutual Fund Portfolio of the Complaint was churned multiple times and it is alleged that the only plausible reason for this churning of portfolio could be to earn more commissions.
  • The total commissions/charges earned by HSBC against transactions in the name of the complaint was Rs27.93 lakh
  • It is seen from capital gains statement for the account of the complaint as submitted by HSBC that a large number of investments were for relatively shorter periods which are difficult to comprehended considering the risk profile of the complainant.
  • The investments have been made in balanced funds, which was not in line with the risk profile of the complainant.
  • Therefore, it is alleged that you have not acted in the interest of the complainants and the investments made by you on behalf of the complainant’s portfolio.
  • Further, this practise exercised by you is deceitful so as to induce excessive churning in the complainant’s portfolio and the same can be categorised as fraudulent and unfair practice on the complainant who had entrusted HSBC with her money.

Now this is how a regulator should behave!

SEBI is the right regulator to approach, as this is a case of HSBC acting as a mutual fund agent or an investment adviser, not as a bank. The regulation is not RBI’s and RBI shouldn’t attempt to defend HSBC.

But SEBI is a very slow actor. Last year, it dinged HSBC for financing promoters of the Adani group in manipulating Adani shares. In fact, even after HSBC wanted a “consent” order paying just Rs. 1-2 crores, SEBI decided that was too little (wanted 50 cr. instead). SEBI decided to take HSBC to court. But it’s not clear what happened there – I don’t see any news after June 2012.

Let’s hope this case does not just wither away and die. HSBC must be fined. They are one of the largest mutual fund distributors around, and if they are barred from mutual fund commissions for two years, it will be a fitting message to send about misselling especially by banks who seem to have the sickest, dirtiest people who don’t think twice about stealing a widow’s retirement money. I would like to see them go to jail and suffer, and for the bank management to suffer losses when such cases happen.


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