SCMP:Yam denies shielding banks from scrutiny

The Monetary Authority cannot stop banks that settle with minibond investors inserting clauses requiring that they drop their complaints and cease disclosing information about their case, its chief executive told lawmakers yesterday.

Joseph Yam Chi-kwong denied he was shielding banks from scrutiny.

He was testifying for the sixth time to the Legislative Council panel inquiring into the alleged mis-selling by banks of credit-linked derivatives, including minibonds, issued or guaranteed by Lehman Brothers. At the end of last year, three months after the American bank filed for bankruptcy - causing 48,000 Hong Kong investors to lose much or all of the HK$20 billion they put into such products - 17 banks paid HK$257 million to settle 616 investors' claims.

"My view is that the HKMA doesn't have any power to interfere with the relationship between the banks and their clients, even if an investor has promised the bank to withdraw their complaint or to not make available further information," Mr Yam told the subcommittee.

"We can still get hold of the information we require from the banks. Of course, if we cannot get information from the investors to corroborate, then it would be more difficult to proceed with the investigation."

He said he would seek legal advice as to whether the inclusion of such conditions in settlements with investors was against the public interest.

A spokesman for the authority said the outcome of such settlements would not affect its investigations.

The authority has received nearly 21,000 complaints about banks' sale of minibonds. Despite their name, minibonds are complex products that derive part of their value from underlying credit instruments.

An authority circular issued in March said banks should not include in settlement agreements clauses that stopped investors disclosing relevant information to regulators.

Democratic Party lawmaker James To Kun-sun called on Mr Yam to reconsider allowing banks to impose such conditions, since they might interfere with the authority's statutory duty to regulate banks. Mr Yam said he would reconsider, but insisted that restricting banks would be unfair if it affected minibond investors' ability to reach a settlement.

Questioned by lawmakers yesterday, Mr Yam sought to show that the authority was on top of the situation. Inspections of bank activities continued between 2003 and 2007 even though there were not many cases of suspected mis-selling of such derivatives, he said. Around the middle of last year, the authority identified more cases of suspected mis-selling. In February last year, the authority set out to investigate 11 banks selling high-risk derivatives, but launched investigations into only four.

Yesterday's Legco session was interrupted three times by rowdy spectators in the public gallery calling for Mr Yam to step down. He will retire on October 1 after 16 years in the job.