"well-educated", disclosure of Minibond risks, and banks' Duty of Care

One of banks’ excuses on dismissing Minibond complaints is that some Minibond victims are reasonably well-educated and should have been alerted by the ‘red flag’ scattered around in the prospectuses.

Understandably, the Minibond designers & promoters would argue (in their heart) that: the ‘ref flag’ is indicative of the real nature of the products and has been well hidden, notwithstanding the reassuring façade ("credit-linked to 7 well-known companies") and the message of safe and diversification that it is designed to convey.


No professional intermediary could have valued the Minibond using only the information provided in marketing material (including Prospectus).

"Minibond Structure and Pricing Report" by Ernest & Young to Hong Kong Bank Associations (Dec.2008) reveals the material information and risk disclosure that are missing from Minibond prospectus.

Banks are blaming SFC for the minibond approval, in additaional to banks' claim that well-educated clients should have known the true feature and risks of Minibond. Can banks repeat their view on the material risks of Minibond today, after over 4-6 years' minibond sale?

Banks seemed to behave like a no-asking & no-telling commission-collecting only middle-man. What happened to banks' duty of care to its clients?

Did banks' well-educated professional & management who have expertise in CDS / CDO / CDS / credit derivative /other investments products forget that they are bound by "Code of Conduct" (knowing the product, explain the true nature and risks to clients, make adequate disclosure of relevant material information)?

Financial institutions engage in improper conduct for financial gain. As in the case of those who evade tax, penalties must have a deterrent effect. Like tax evaders, the financial institutions should have faced penalties of up to three times the fees and commissions they earned as a result of their misconduct. Regulators in other jurisdictions have found that removing the financial gain is an effective deterrent.

In other jurisdictions, when misconduct by financial institutions has been shown, compensating all affected investors is the norm. The onus is on the financial institution to demonstrate why an investor should not be compensated. Our process of putting the onus on the investor to prove his claim puts many ordinary investors at a disadvantage.

The outcome of this saga does not appear to be just and does not augur well for consumer protection in thefinancial service sector.