The SFC has reprimanded SocGen over lack of internal controls of its wealth management activities in Hong Kong, leading it to reimburse customers more than US$11 million.

Hong Kong's Securities and Futures Commission has reprimanded Societe Generale over lack of internal controls of its wealth management activities in its Hong Kong branch, leading it to reimburse customers more than USD$11 million.

The SFC raised concerns that, in over 3,000 transactions undertaken between April 2003 and January 2006, customers of the bank's Hong Kong-based wealth management activities paid or received a different price for over-the-counter products, from the actual price transacted for them by Societe Generale, with the difference, or margin, being retained by Societe Generale as a fee.

The fee was variable and in some cases, excessive. The SFC said in a statement: "It appears Societe Generale did not disclose this fee to the customers nor was the fee disclosed as a commission in the resulting contract notes issued to each customer."

A spokesperson for the French lender said: "Societe Generale acknowledges the SFC's announcement. The bank has agreed, without admitting liability, to reimburse affected customers in its wealth management business who invested in certain secondary market OTC products between April 2003 and January 2006."

The SFC also raised concerns that SocGen’s internal controls and systems in its wealth management activities had failed to ensure customers were fairly treated in transacting OTC products in the secondary market, that there were inadequate policies, procedures and guidelines to ensure margins were disclosed and appropriate in each case and that conflicts of interests were properly managed.

Societe Generale has also agreed to engage an independent reviewer who will assess the amount to be paid to eligible customers, and review the controls, systems and procedures of the wealth management unit of Societe Generale in Hong Kong. It has informed the SFC that it changed its practices in February 2006 and that these issues are no longer part of its practice. The spokesperson told this publication: 

"The bank takes very seriously the subject of customer information and internal controls. Since January 2006, the Hong Kong wealth management business of Societe Generale took actions to enhance its procedures and currently makes disclosure on a per-transaction basis prior to the execution of any relevant transaction, fully aligned with local regulation.”

The SFC’s executive director of enforcement, Mark Steward said, “These fees should not have been charged or taken without clear agreements and disclosure. Societe Generale is doing the right thing now in reimbursing its customers.”

“Regulated corporations must have proper policies and procedures to ensure that their customers are fairly, honestly and professionally treated. Relevant fees and charges need to be agreed and disclosed to customers,” he added.

This case was referred to the SFC by the Hong Kong Monetary Authority following its investigation into issues identified in its on-site examination and matters arising from a complaint.