HSBC Forced To Ban Bankers From Trading Stocks In Their Personal Accounts

HSBC has a shaky relationship with regulators. 

Back in 2012, the bank admitted that it helped Mexican drug cartels launder money and did business with Iran and other sanctioned nations. To avoid charges, it signed a deferred prosecution agreement (DPA) with the U.S. Department of Justice which required it to improve its internal controls and submit to an outside monitor. 

As part of the 2012 agreement, HSBC paid $1.9 billion, a record penalty at the time, and pledged to cooperate with Justice Department probes for five years. In doing so, the bank was spared the stigma of a criminal record in the U.S. – and the threat that it might lose access to some of its most lucrative institutional banking activities in the world’s largest economy.

Then, just last July, the DOJ filed charges against two HSBC FX traders, Mark Johnson (global head of cash FX) and Stuart Scott, for “conspiring to rig currency benchmarks” and specifically for front-running customer orders (see “HSBC Global Head Of FX Cash Trading Arrested At JFK Airport“).  Mark Johnson was the first person to be charged in the DOJ’s three-year investigation into foreign-exchange rigging at global banks.  The DOJ complaint alleged that in 2011, Johnson and Scott purchased Pound Sterling for HSBC proprietary accounts in an effort to front-run a $3.5BN Pound Sterling purchase by an HSBC client.  The front-running effort apparently netted HSBC an $8mm profit.

HSBC

Now, after years of investigations, HSBC has apparently decided it simply can’t trust its 6,000 bankers to do the right thing and has instead decided to cut them all off from trading in their personal accounts.  Per Bloomberg:

HSBC Holdings Plc has instructed about 6,000 employees of its global markets division to cease buying single-name securities on their personal accounts, according to people with knowledge of the matter.

 

Purchases of single-name stocks, bonds and concentrated exchange-traded funds will be prohibited, Global Head of Markets Thibaut de Roux told staff in an email on Friday, said the people, who declined to be identified discussing internal communications. The changes also apply to employees managing the lender’s own balance sheet, the people said.

 

Employees will be allowed to maintain existing holdings of securities prohibited by the new rules, while any sales must be pre-approved by compliance personnel, staff were told. Managers have been instructed to be vigilant in such approvals and decline requests if necessary, the people said.

HSBC isn’t the first big bank to toughen internal policies on personal trading. Goldman Sachs barred investment bankers from trading individual stocks and bonds in 2014. By contrast Deutsche Bank, which houses Europe’s biggest investment bank, allows traders to deal in stocks and bonds for their personal gain once their managers approve, according to two people familiar with the matter.

Of course, we have every confidence that these new rules will solve all conflict of interest issues…


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