The year 2016 is slowly coming to an end. But the troubles faced by the major banking corporations seem to be never-ending.
Just like every other year, a series of fines and reprimands were noted in 2016. The year started with Goldman Sachs paying $5.1 bn for toxic mortgage settlement, February with Morgan Stanley paying $3.2 billion fine for its role in the market meltdown, and September saw Deutsche Bank paying $14 bn for toxic mortgage settlement.
Now it’s HSBC’s turn.
On September 14, 2016, the Securities and Futures Commission (SFC) posted a press release stating that they have issued a fine of $2.5 million on Hongkong and Shanghai Banking Corporation (HSBC) for regulatory breaches as well as internal control failures. HSBC also faced a major reprimanding session to put a stop on repetition of such an unforgivable mistake.
This is not the first major case for HSBC, though.
In 2012, the banking leader had to pay $1.2 billion for a dragged money-laundering case, easily qualifying for one of the largest bank settlements in history. They also paid a fine of $470m in February this year for ‘abusive mortgage practice’ case dated back to 2008. They were accused of forging signatures on thousands of foreclosure documents without properly reviewing them.
What were they accused of in the current case, though? Let’s know more.
HSBC: A Brief
Type- Public limited company
Founded- 3 March 1865 in Hong Kong
Headquarters- HSBC Main Building, Central, Hong Kong
Net income- HK$162,598 million (2016)
Total assets- HK$7,548.952 billion (2016) 
Dubbed as the largest bank in the Hong Kong region, HSBC has been ruling the Asia Pacific and several other countries since it was first set up.
HSBC, or The Hongkong and Shanghai Banking Corporation Limited, also takes the pride of being one of the three commercial banks that are licensed by the Hong Kong Monetary Authority to issue banknotes.
Hang Seng Bank is one of the main subsidiaries of HSBC and was acquired by the former back in 1965 with 62.14% controlling interest.
Breach of Prescribed Position Limit
First major charge put upon HSBC is the breach of rules related to contract limits laid out by the governing authority.
According to the Section 4 (1) of the SFC rules, a person that doesn’t hold a proper SFC or Hong Kong Exchanges and Clearing Limited authorization is not allowed to hold or control futures or stock options contracts beyond the prescribed limit.
Which wasn’t followed by HSBC, of course.
It was noticed that the main subsidiary of HSBC, Hang Seng China Enterprises, surpassed its prescribed limit of 12,000 long/short position delta for the contract months. This rule was noted to be neglected 18 times over a span of 4 months, i.e. 26 May 2014 to 1 August 2014.
HSBC also failed to comply the prescribed position limit by neglecting the ever-crucial implementation of adequate internal controls to monitor its positions in Hong Kong Future Exchange’s controls and options.
According to SFC’s findings, HSBC failed to identify its prescribed limit breaches for four months straight due to a lack of adequate knowledge of the rules and regulatory conducts.
Additionally, HSBC was also found out to be lacking in policies and procedures for position limit monitoring of HKFE’s options and futures contract.
HBSC has since taken steps and measures to keep a close eye on the position limits and has promised to comply all the regulatory rules to stop this from happening again.