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The Securities and Exchange Board of India (Sebi) has sent a showcause notice to Hong Kong and Shanghai Banking Corporation (HSBC) over allegations of misselling and mishandling of the portfolio of actor and singer Suchitra Krishnamoorthi.
The matter relates to accusations by Krishnamoorthi over alleged misselling of products and mismanagement of her assets. HSBC has received the showcause notice, said a person familiar with the matter. A showcause notice is a preliminary notification asking why action should not be taken against an entity.
An email to a Sebi spokesperson requesting comment did not elicit a reply. When contacted, an HSBC spokesperson said: “We cannot comment on matters related to customer issues.” Earlier, Moneylife magazine had reported on Krishnamoorthi’s complaint against HSBC. Of late, regulatory organisations around the world, including Sebi, have been taking complaints of mis-selling very seriously.
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In April-May this year, a meeting of Asia-Pacific regulators from Chinese Taipei (Taiwan), Hong Kong, Japan, New Zealand and Singapore discussed issues on investor protection and tackling mis-selling of capital market products.
In December 2012, Sebi had brought misselling under the purview of the Prohibition of Fraudulent and Unfair Trade Practices regulations, which cover offences such as market manipulation. The regulator empowered itself to prohibit entities found to be involved in such activities from dealing in the securities market.
Earlier, Sebi had introduced the concept of employee unique identification number (EUIN), which helps identify the employee who approaches a particular customer. This becomes useful while tracking down the individual employee who missold a product. This was not possible before because all employees would use the corporate entity’s identification number, common to all its employees.
Krishnamoorthi had an account with the bank from the early part of the last decade and was allegedly advised to invest in a wide variety of financial products. She had alleged her portfolio was repeatedly churned, resulting in losses.
Most of this reportedly happened before Sebi’s ban on entry loads for mutual funds. Entry loads were used to pay commissions to distributors whenever an investor puts his money into a financial product. This created an incentive for distributors to ‘churn’ portfolios, by repeatedly exiting and reinvesting capital in different products to earn commission from the same. HSBC had a total income of Rs 185.88 crore from the sale of life insurance, non-life insurance and mutual fund products, according to its annual report for the financial year ending in 2013. Krishnamoorthi could not be contacted for her comments.
