A decision by the Hong Kong Securities and Futures Commission (SFC) to suspend the license of an independent financial advisor, Andrew Barber of Barber Asia Limited, has been upheld by the Securities and Futures Appeals Tribunal (SFAT), although it also reduced the length of his sentence.
This is yet another high profile case against Hong Kong's modest IFA industry, which is struggling to assert itself against the might of big commercial banks distributing investment products.
The SFC has been public about its efforts to punish wrongdoers in the IFA industry and has put a lot of material about the Barber case on its website. However, industry executives point out that the regulator is able to pursue small beer like Barber, it is unable to do anything about similar cases of mis-selling by banks. For example, a funds exec says the SFC has mentioned in private seminars that it received a complaint regarding a 90 year-old customer of a major bank who was sold a five-year guaranteed fund. (The SFC confirmed the story but remained ambiguous about whether it involved a bank or an IFA.)
But because banks are regulated by the Hong Kong Monetary Authority, the SFC passed the case to it and both entities have refused to name the alleged culprit. No more was heard; perhaps the bank settled, or the HKMA decided not to pursue the case.
A HKMA spokeswoman declined to discuss a particular case, and says: "The HKMA will continue to maintain a close dialogue with the Securities and Futures Commission to ensure that consistent standards are being applied to banks in their conduct of investment advisory activities... Banks and their relevant staff are subject to consistent regulatory standards and the same disciplinary sanctions as those applicable to licensed investment advisers and their representatives in the conduct of investment advisory activities."
Fund execs say the SFC is powerless to make banks clean up their act in this regard. Cases such as Andrew Barber's and the collapse of Towry Law have left fund management bosses cringing, because they desperately want to see the IFA channel develop so there is more competition among distributors, but the IFA business keeps shooting itself in the foot.
The SFAT found that Barber had negligently advised its client, Hong Kong resident Susan Field, causing her financial loss. In 1998 Barber advised Field to enter into a loan and guarantee scheme that borrowed in yen for investment in sterling, with 2.5x gearing - which required Field to make additional margin payments when the yen appreciated. After repeated margin calls, Field closed the account in 1999 and received back less than 25% of the value of her original investment.
Barber defended himself without a professional lawyer and did not put forth evidence to the SFC or during High Court proceedings, and in September, 2004 had his license suspended for six months. He appealed and presented new evidence, which saw his suspension reduced to one month.
But the SFAT upheld the judgment that Barber had not properly explained the downside risks of his investment scheme to Field, and that he had improperly assessed the suitability of this product for her. The SFAT further found that "express warnings on the face of the investment product documentation do not absolve an investment adviser from their duty to properly explain the risks involved to the client", as the SFC says on its website.
The SFAT also rejected Barber's argument that the fact that the client concerned was an "Execution Only" client was in itself sufficient to divest the investment adviser of responsibility for any advice given, says the SFC. Although Barber's punishment has been reduced, industry sources believe these findings will make it very difficult for him to return to the industry in which he has worked for more than two decades.