SCMP:Mis-selling of minibonds had 1980s precedent in Britain

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29 Dec 2008
Jimmy Chow, Cheung Sha Wan

The controversy over the minibond saga does not only relate to compensation. It is about [alleged] mis-selling.

Instead of paying investors of Lehman’s minibonds back, local banks have come up with a complex way by providing a pool of HK$100 million to help the minibond trustee to perform its duty to protect the “interest of minibond investors” (“Deduction decision in legal fight irks Lehman investors”, December 19).

If a retired taxi driver did not seem to understand the minibond in which he had invested his life savings, he can hardly be expected to grasp this legal game [unfolding in the US]. Neither can I.

So far, only a limited number of people have received compensation from the banks, a small percentage of total claimants.

The mis-selling of securities in Hong Kong, which mostly occurred over the last two years, is reminiscent of the mis-selling in Britain between 1988 and 1994.

In 1988 the British government encouraged people to make private provision for retirement in addition to the state pension by purchasing personal pension plans.

It turned out that fast-talking salesmen misled people into buying retirement pension products they did not really need.

Realising there had been mis-selling on a huge scale, in 1994 the British financial services regulator “instructed” banks and insurers to stop these practices and review all cases.

By 1997 only 5 per cent of the cases were cleared up.

That year, the newly-elected Labour government decided to “name and shame” and to fine the laggards.

Disciplinary action was taken against 349 firms which resulted in fines totalling £11million (HK$126.3 million). Nearly £12 billion was paid in compensation to policyholders.

I hope I am wrong, but if our government remains reluctant to conduct a radical review on both the minibond scandal and the city’s regulatory framework, the saga will drag on indefinitely.