HSBC Securities (USA) Inc. has agreed to pay a $650,000 fine as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA). The fine stems from HSBC’s failure to screen non-registered associated persons for statutory disqualification.

As part of its supervisory obligations, HSBC was required to screen its non-registered associated persons for statutory disqualification. This is because Article III, Section 3(b) of the FINRA By-Laws generally prohibits member firms from associating with an individual subject to statutory disqualification, unless specific approval has been granted. Under Section 3(a)(39) of the Exchange Act, a person is subject to disqualification if that person was the subject of certain regulatory events or has been convicted of certain crimes within the prior ten years.

Between January 1, 2011 and March 25, 2019, HSBC failed to establish and maintain a supervisory system or written supervisory procedures reasonably designed to screen 2,191 non-registered associated persons for statutory disqualification. The firm’s written procedures only addressed fingerprinting and screening for statutory disqualification of registered individuals or those required to be registered. The procedures did not require that non-registered associated persons be fingerprinted and screened for statutory disqualification under the Exchange Act.

The firm also failed to assign personnel to identify and screen non-registered associated persons under the Exchange Act.

Due to this failure, although HSBC fingerprinted the 2,191 non-registered associated persons, it did not screen them for statutory disqualification under the Exchange Act. Rather, the Firm screened them under the narrower requirements of Section 19 of the Federal Deposit Insurance Act.

After identifying this issue, as part of its remedial efforts, HSBC was able to fingerprint and screen 1,837 of the 2,191 non-registered associated persons pursuant to Exchange Act standards. Through this process, HSBC did not identify any individuals who were subject to statutory disqualification.

However, HSBC was unable to fingerprint and screen 304 of the 2,191 individuals because they were no longer associated with the firm, and HSBC could thus not determine whether those individuals were subject to statutory disqualification.

Therefore, HSBC violated NASD Rule 3010 and FINRA Rules 3110 and 2010.

As a part of the settlement, HSBC has agreed to the imposition of the following sanctions:

• a censure;
• a fine in the amount of $650,000;
• an undertaking to review its systems and procedures regarding the identification, fingerprinting, and screening of non-registered associated persons to ensure that current systems and procedures are reasonably designed to achieve compliance with governing securities laws and regulations.