HSBC overcharged thousands of mutual fund clients

The B.C. Securities Commission has reached a settlement with HSBC after the bank overcharged some of its mutual fund clients who were eligible for lower fees, officials said Monday.

According to the commission, HSBC’s Investment Funds and Private Wealth Services divisions paid $300,000 in fines as part of the settlement, and reimbursed 4,661 client accounts for a total of more than $7 million.

Mark French, the commission’s manager of dealer compliance and registration, said such cases are relatively rare, although the settlement acts as a reminder to investors that they should be vigilant about the management of their portfolios — even when dealing with a major broker or financial institution.

“Investors should always keep a close watch on their accounts, even though the research shows that many don’t,” French said, adding that HSBC came forward with the discovery of the overcharges and compensation plans. “In this case, I think they can be comfortable knowing that their (financial institution) acted in a very responsible way.”

Officials said the HSBC operations involved have policies to either tell clients if their accounts qualify for a lower-priced fund, or to exclude certain client-controlled securities when calculating fees. In both cases, HSBC did not apply these policies consistently “due to inadequate controls and supervision,” the report announcing the settlement said.

“We take this issue very seriously, and as soon as it got on our radar, we were quick to review and implement a compensation plan,” said HSBC Canada spokeswoman Aurora Bonin. “It shouldn’t have happened, and we are working very diligently with clients to set things right.”

The discovery of the overpayments came after Canada’s securities regulators began contacting banks and other investment brokers and dealers last year about the potential for discrepancies between the amount investors should be paying on their accounts and the actual charges levied.

That move followed the announcement of a $13.5-million settlement (in addition to unspecified compensation to clients) with at least 10,000 Toronto-Dominion accounts in November 2014. The Ontario Securities Commission found that TD had collected overpayments for more than 13 years.

French said that while there are other ongoing reviews in Canada, he does not anticipate further cases in B.C.

He added that HSBC hired a third-party accountant to calculate the impact of its overcharges on clients, including “lost opportunity” costs.

“I think the (report) glosses over the extent (that HSBC) went in making the investors whole again,” French said. “I mean, it shouldn’t have happened in the first place, but they’ve moved very quickly, and they were very transparent and didn’t try to hide anything.” 

June 13, 2016 

Bonin said HSBC has also updated its procedures to prevent similar occurrences in the future.BC has red a total of more than $7 million to clients who were charged higheessarDJUCOM