FINRA fined HSBC $375,000 for selling
unsuitable inverse floating rate Collateralized Mortgage Obligations (CMOs) to unsophisticated
retail customers, often without the required supervision.
Inverse floating rate CMOs are risky, fixed-income securities that FINRA
considers "only suitable for sophisticated investors with a high-risk
profile." According to the investigation, HSBC failed to inform its
sales representatives of the risks involved with the specific CMOs available
for sale and to advise the representatives that the securities were only
suitable for sophisticated clients seeking high-risk investments.
"The losses incurred by HSBC's customers likely would have been
avoided had the firm sufficiently trained its brokers on the suitability
and risks of inverse floating rate CMOs and reasonably supervised their
brokers to ensure that they were making suitable recommendations,"
said James S. Shorris, FINRA Executive Vice President and Acting Chief
HSBC has consented to the entry of FINRA's findings and has paid $320,000
in restitution to investors so far.