Last week we saw evidence of how our federal regulators, tasked with protecting us from fraudulent bank behavior, much prefer to dole out slaps on the wrist, and generally do very little to protect individual consumers. A case of bank malfeasance in England, which was settled Monday, provides contrast; even if England’s economy has mirrored ours since Thatcher and Reagan took our nations down parallel deregulatory paths, it seems their regulators still have the gall to stand up to corporate malfeasance on the part of big banks, even if big banks don’t like it.
The Financial Services Authority is Britain’s version of the SEC: the group tasked with regulating the banking industry. Similar to the SEC, the FSA is often accused of being soft on the industry it’s supposed to be regulating. But their Monday decision against HSBC seems to suggest that America and Britain have different expectations regarding proper banking regulation.
A subsidiary of HSBC (NYSE:HBC), the London-based bank, was accused of selling investment bonds to elderly customers that had maturity dates beyond the customers’ life expectancy; while the bonds should have been held for five years to reach proper maturity, HSBC was selling them to investors with an average age of 83. On top of this, the product was pitched as a way to pay for nursing home costs, and customers were routinely forced to make early withdrawals to cover these costs — basically, the product was sold to them far too late in their lives.
It wasn’t a bad product per se, but the sales pitch was misleading to say the least.
Now that’s bad behavior on HSBC’s part, no doubt, and it was dealt with properly: they were fined about $16 million by the FSA, and forced to pay about $46 million back to their customers who lost money in the deals.
Compare this to how the SEC handled Citibank’s (NYSE: C) fraudulent mortgage-backed security (which they loaded with toxic debts and bet against, and which they marketed as a stable investment); the SEC fined Citi and forced them to disgorge their ill-gotten profits. But the SEC did not take investor losses into account, which amounted to more than double what Citi would have paid in the settlement. Had you invested in the product years back — tough luck.
But the SEC knew that Citi had behaved in a fraudulent fashion; by contrast HSBC was just being dishonest with easy-to-manipulate customers. People routinely live past statistical life expectancies — though on average, obviously, they do not — and at the very least HSBC’s product wasn’t full of assets they knew to be worthless.