Report of the Subcommittee to
Study Issues Arising from Lehman Brothers-related Minibonds and Structured Financial Products

June 2012

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TABLE OF CONTENTS
			Page
Executive Summary			i - xii
Chapter 1	Introduction		1 - 21
Chapter 2	Lehman Brothers-related Minibonds and structured financial products sold in Hong Kong		22 - 31
Chapter 3	Regulation of the conduct of securities business by banks		32 - 49
Chapter 4	Regulation of the distribution of Lehman Brothers-related Minibonds and structured financial products by banks		50 - 74
Chapter 5	Distribution of Lehman Brothers-related Minibonds and structured financial products by retail banks to their customers		75 - 132
Chapter 6	The handling and resolution of Lehman Brothers-related complaints under the existing regulatory regime		133 - 156
Chapter 7	Investor protection		157 - 173
Chapter 8	Concluding observations and recommendations		174 - 201
Acknowledgement			202
Signatures of members of the Subcommittee			203 - 204
Abbreviations			207 - 211
Appendices
Appendix 1(a)	Membership list		215
Appendix 1(b)	Eligibility criteria to be met by investors volunteering to assist the Subcommittee		216 - 217
Appendix 1(c)	Practice and Procedure of the Subcommittee		218 - 230
Appendix 1(d)	Schedule of hearings and attending witnesses		231 - 237
Appendix 2(a)	Retail banks which distributed LB structured products		238
Appendix 2(b)	Outstanding LB structured products distributed by banks		239 - 240
Appendix 2(c)	Major distributing banks of certain outstanding LB structured products		241
Appendix 3(a)	Division of regulatory responsibilities for AIs' securities business under the Memorandum of Understanding between the HKMA and the SFC		242 - 245
Appendix 4(a)	CO Compliance Checklist		246 - 267
Appendix 4(b)	Legislative amendments effective from 13 May 2011 relating to the regulation of public offers of structured products		268 - 269
Appendix 4(c)	Nine general principles set out in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission		270 - 271
Appendix 4(d)	Production of thematic examination reports as ordered by the Subcommittee		272 - 274
Appendix 5(a)	Major requirements under the enhanced complaint-handling procedures		275 - 277
Appendix 6(a)	Agreements made by SFC and MA with banks in respect of LB-related Minibonds and structured financial products		278 - 284
Appendix 6(b)	Recovery from the collateral for LB-related Minibonds		285 - 286
Appendix 7(a)	Examples of investor education work undertaken by SFC		287 - 288
Appendix 7(b)	Some instances of Mr Joseph YAM's general forewarnings		289 - 290
Lists of written evidence/documents
A.	Evidence/documents provided by the Administration		294 - 297
B.	Evidence/documents provided by the Hong Kong Monetary Authority		298 - 305
C.	Evidence/documents provided by the Securities and Futures Commission		306 - 315
D.	Evidence/documents provided by DBS Bank (Hong Kong) Limited		316 - 317
E.	Evidence/documents provided by Standard Chartered Bank (Hong Kong) Limited		318 - 319
F.	Evidence/documents provided by Citibank (Hong Kong) Limited		320
G.	Evidence/documents provided by The Royal Bank of Scotland N.V.		321 - 322
H.	Evidence/documents provided by Bank of China (Hong Kong) Limited		323 - 324
I.	Evidence/documents provided by Dah Sing Bank, Limited		325
J.	Evidence/documents provided by other witnesses		326 - 327
Minutes of proceedings			331 - 359

Minutes of evidence of public hearings

Phase I of Stage 2 - Hearings to receive evidence from the Administration and the regulators
Hearing	Dates	Witnesses
1	20 February 2009	Professor CHAN Ka Keung Secretary for Financial Services and the Treasury
2	24 February 2009
3	27 February 2009
4	20 March 2009
5	14 April 2009	Mr Joseph YAM Chi-kwong Monetary Authority
6	17 April 2009
7	28 April 2009
8	8 May 2009
9	15 May 2009
10	22 May 2009
11	26 May 2009	Mr Y K CHOI Deputy Chief Executive of Hong Kong Monetary Authority
12	2 June 2009
13	5 June 2009
14	12 June 2009
15	23 June 2009	Mr Martin WHEATLEY Chief Executive Officer Securities and Futures Commission
16	26 June 2009
17	3 July 2009
18	7 July 2009
19	17 July 2009	Mr Brian HO Executive Director Corporate Finance Division of the Securities and Futures Commission
20	21 July 2009
21	3 August 2009	Mr Martin WHEATLEY Chief Executive Officer Securities and Futures Commission
22	10 November 2009	Mr Y K CHOI Deputy Chief Executive of Hong Kong Monetary Authority
23	17 November 2009
24	11 December 2009	Mr John C TSANG Financial Secretary
25	18 December 2009
26	8 January 2010	Mr Martin WHEATLEY Chief Executive Officer Securities and Futures Commission
27	19 January 2010*	Mr KO Ping Chung Harold Former employee Securities and Futures Commission
28	26 January 2010
29	29 January 2010
30	9 February 2010	Mr Martin WHEATLEY Chief Executive Officer Securities and Futures Commission
31	26 March 2010
Phase II of Stage 2 - Hearings to receive evidence from the top/senior management of six selected banks
Hearing	Dates	Witnesses
32	16 April 2010	Ms Amy YIP Chief Executive Officer DBS Bank (Hong Kong) Limited Ms Linda WONG Managing Director and Head of Consumer Banking Hong Kong & Mainland China DBS Bank (Hong Kong) Limited Ms Janet Hey CHONG Senior Vice President Consumer Investment & Insurance Products Consumer Banking DBS Bank (Hong Kong) Limited
33	20 April 2010
34	23 April 2010
35	30 April 2010
36	7 May 2010	Mr HUNG Pi-cheng, Benjamin Executive Director & Chief Executive Officer Standard Chartered Bank (Hong Kong) Limited Ms Mary Wai Yi HUEN Head of Consumer Banking Standard Chartered Bank (Hong Kong) Limited
37	11 May 2010
38	14 May 2010
39	25 May 2010	Mr LO Wai-pak, Weber Chief Executive Officer & Country Business Manager Citibank (Hong Kong) Limited Ms Fanny LUM Director of Wealth Management Citibank (Hong Kong) Limited
40	28 May 2010
41	1 June 2010
42	4 June 2010	Mr HUNG Pi-cheng, Benjamin Executive Director & Chief Executive Officer Standard Chartered Bank (Hong Kong) Limited Ms Mary Wai Yi HUEN Head of Consumer Banking Standard Chartered Bank (Hong Kong) Limited
43	29 June 2010	Ms Amy YIP Chief Executive Officer DBS Bank (Hong Kong) Limited Ms Linda WONG Managing Director and Head of Consumer Banking Hong Kong & Mainland China DBS Bank (Hong Kong) Limited Ms Janet Hey CHONG Senior Vice President Consumer Investment & Insurance Products Consumer Banking DBS Bank (Hong Kong) Limited
44	6 July 2010	Mr CHU Ren-yee, Alexander Country Executive, Hong Kong The Royal Bank of Scotland N.V. Mr John SHELLEY Chief Operating Officer (Retail and Commercial Markets, Asia) The Royal Bank of Scotland N.V.
45	9 July 2010
46	13 July 2010*	Mr Martin WHEATLEY# Chief Executive Officer Securities and Futures Commission
47	13 July 2010	Mr CHU Ren-yee, Alexander Country Executive, Hong Kong The Royal Bank of Scotland N.V. Mr John SHELLEY Chief Operating Officer (Retail and Commercial Markets, Asia) The Royal Bank of Scotland N.V.
48	21 September 2010
49	28 September 2010*	Ms Linda WONG Managing Director and Head of Consumer Banking Hong Kong & Mainland China DBS Bank (Hong Kong) Limited
50	28 September 2010*	Mr LAM Yim-nam Deputy Chief Executive Bank of China (Hong Kong) Limited
51	28 September 2010*	Ms Fanny LUM Director of Wealth Management Citibank (Hong Kong) Limited
52	28 September 2010*	Mr John C LAM Alternate Chief Executive and Executive Director Dah Sing Bank, Limited
53	5 October 2010	Mr HE Guangbei Vice Chairman and Chief Executive Bank of China (Hong Kong) Limited Mr LAM Yim-nam Deputy Chief Executive Bank of China (Hong Kong) Limited
54	8 October 2010
55	8 October 2010*	Mr LAM Yim-nam Deputy Chief Executive Bank of China (Hong Kong) Limited
56	19 October 2010*	Mr CHU Ren-yee, Alexander Country Executive, Hong Kong The Royal Bank of Scotland N.V.
57	19 October 2010*	Ms Mary Wai Yi HUEN Head of Consumer Banking Standard Chartered Bank (Hong Kong) Limited
58	19 October 2010*	Ms Fanny LUM Director of Wealth Management Citibank (Hong Kong) Limited
59	19 October 2010	Mr HE Guangbei Vice Chairman and Chief Executive Bank of China (Hong Kong) Limited Mr LAM Yim-nam Deputy Chief Executive Bank of China (Hong Kong) Limited
60	23 October 2010 (am)
61	23 October 2010 (pm)
62	2 November 2010	Mr WONG Hon-Hing, Derek Managing Director and Chief Executive Dah Sing Bank, Limited Mr John C LAM Alternate Chief Executive and Executive Director Dah Sing Bank, Limited
63	5 November 2010
64	9 November 2010
(The post titles/positions indicated against the names of the above witnesses are those held by the witnesses when they attended the hearings)
Phase III of Stage 2 - Hearings to receive evidence from the frontline staff of the six banks
Hearing	Dates	Witnesses
65 to 90	From December 2010 to January 2011*	26 frontline staff from the six banks
Phase IV of Stage 2 - Hearings to receive evidence from certain investors who had purchased LB structured products through the six banks
Hearing	Dates	Witnesses
91	25 February 2011	Ms IP Chun
92	25 February 2011	Mr NG Joong-yee
93	25 February 2011	Ms HO Lai-yuet
94	18 March 2011	Ms TAM Sui-lin
95	18 March 2011	Ms KO Yuk-ha
96	22 March 2011	Ms CHUNG Kit-chu
97	22 March 2011	Mr KAN Bing-kwong
98	25 March 2011	Mr TSE Chin-to
99	25 March 2011	Ms FUNG Kit-mui
100	12 April 2011	Ms FUNG King-cheung, Vency
101	12 April 2011	Ms CHAN King-hing
102	12 April 2011	Mr YIP Kai-chiu
103	19 April 2011	Ms LI Yuk-mui
104	19 April 2011	Ms LAW Siu-luen
105	19 April 2011	Mr KWOK Ming-sum
106	31 May 2011	Mr YEE Heung-ming

* denotes closed hearings # The evidence received from the witness was in connection with Phase I