Hong Kong charges Merrill Lynch with $3mn fine

A probe found out that Merrill Lynch failed to properly assess the financial situation and investment objectives of 40 customers who invested in the index-linked notes in 2007.

Merrill Lynch (Asia Pacific) has been reprimanded and fined $3 million by the Securities & Futures Commission for inadequate systems in relation to the sale of two index-linked notes to 72 clients in 2007, according to a report by the commission.

The decision follows an investigation in which the commission raised concerns Merrill Lynch failed to properly assess the financial situation and investment objectives of more than 40 of the 72 customers who invested in the index-linked notes in 2007. Key product information was only provided to clients after they had agreed to invest in the index-linked notes and Merrill Lynch kept inadequate documentation to explain the rationale behind the advice it had given to customers, the commission said.

Merrill Lynch has agreed to repurchase from customers holding the outstanding index-linked notes 100% of the principal amount invested. The value of the repurchase offers is expected to be about $28.6 million. It also agreed to offer top-up payments to customers who bought the index-linked notes through it and redeemed them for less than their principal invested.

It will review client complaints regarding its distribution, sale, and provision of investment advice in relation to unlisted structured products other than the two index-linked notes. The firm will also engage an independent audit firm to conduct a review of its internal distribution systems and controls.